4 Canadian Stocks With Great Upside Potential

 |  Includes: BDRAF, CEO, SJR, SU
by: Mark Bern, CFA

By Mark Bern

I generally stick to dominant, dividend paying stocks with a significant portion of revenue and earnings derived from foreign operations. I like Canadian stocks for one reason: the Canadian financial institutions are in better shape than their U.S. or European peers giving the Canadian economy a better underpinning in case of a global financial crisis. I am not predicting a financial crisis. But for those who would like a little insurance against the unknown potentialities, these four enterprises could offer some currency exchange boost to their already impressive potential growth prospects.

In the table below I list some of the basic information and key ratios for each stock. Below the table I provide a short narrative describing why I believe that these companies have above average prospects for earnings growth.



Recent Stock Price

Dividend Yield

Payout Ratio

Debt to Cap

Est. Average Total Return








Suncor Energy







Shaw Communications







Bombardier “B”







Click to enlarge

Nexen, formerly known as Canadian Occidental, is an oil and gas exploration and production company with operations in Canada, the Gulf of Mexico, the North Sea, Yemen, Columbia and offshore West Africa. A lot has gone wrong for this company and I’ll admit that without some help we won’t be able to reach the total return estimate. But there seems to be a strong possibility that Nexen will be soon be able to sell its oil sands operation in Canada for a good profit to a Chinese oil firm. CNOOC, the huge state-owned Chinese E&P company recently bought out Nexen’s partner in the Long Lake oil sands field and it will probably want to control the 65 percent that it doesn’t already own which belongs to Nexen. The field has been underperforming (about 62 percent of capacity) and Nexen would do well to take a profit and run. North Sea production has been down slightly in 2011 but that is a problem that is correctable. The company stands to lose its operator license in Yemen later this month which would reduce total output by about 35,000 barrels per day. But forecasts for increased production from the North Sea and the company’s holding offshore of Nigeria are about 65,000 barrels per day in 2012. Any rise in oil prices later in 2012 or beyond will flow to the bottom line.

Suncor Energy is primarily a play on expanded output from its oil sands operations which is a pretty good bet. The company also has exploration and production operations in several other locations around the world as well as oil refining and a petrochemicals unit. In 2011, the company is expected to increase revenue by 15 percent and earnings by 50 percent. In 2012, the earnings increase is not expected to be quite as exciting by still an impressive 15 percent or more. The company has significant potential for growth as it continues to ramp up its oil sands operations, opening a second facility/location in early 2012. Suncor has also begun to use its free cash flow to buy back shares having authorized a $500 million stock buy-back program. All of which will have a positive impact on earnings per share and, by extension, the share price. I expect Suncor stock to outperform the general market as well as its oil industry peers over the next five year or longer.

Shaw Communications is another Canadian company with good upside potential over the long-term. It is the second largest multi-system cable TV operator in Canada offering cable, Internet and satellite TV services. The company is likely to continue increasing its dividend, one of its best features. Shaw made a misstep in promising too much in its wireless business. Fortunately, the company recognized its mistake early enough to avoid catastrophic losses. Cost cutting, layoffs and scaled back capital investment where returns would not have been profitable are putting the company back on track to provide sustainable gains for shareholders who are patient enough to see the moves reflected in the price in the coming years. It’s nice to have that 4.6 percent dividend while we wait.

Bombardier is an aerospace industry company with two main operating groups: Aerospace (business and commercial aircraft) and Transportation Products (rail cars and related products). Each group produces approximately 50 percent of revenues while the aerospace unit provides about 60 percent of profit compared to 40 percent for transportation products. The company has a decent balance sheet and two years of back log orders currently. While the transportation products unit is somewhat less profitable, it is more predictable and is growing faster than aerospace. This is due to the improved prospects for rail traffic, especially in China where Bombardier is seeing strong growth in orders. This one is for the patient investor as the current weakened global economy is holding down what would otherwise be stellar growth.

As always, investors are reminded to do the homework in researching the listed stocks to make sure these offerings fit well into your portfolio. Information in this or any article you find on the Internet should be confirmed before investing.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.