By Fani Kelesidou
Canada has vast amounts of natural resources yet to be explored. The country is rich in oil and natural gas reserves, as well as precious and essential commodities. The resource rich Canadian economy continues to outperform some of the world's most industrialized economies. While the Eurozone is straggling with negative growth rates, Canada is expected to record a positive 2.2 percent growth for 2012. The Bank of Canada estimates that the domestic economy will continue to grow by 2.4 percent in 2013. Moreover, in 2011, Forbes magazine rated Canada as the best country for business. Not unjustified. Canada's remarkable performance is primary driven by low business costs, easy access to markets, low corporate tax rates and strong support for research and development. Here, I review four Canadian stocks, which I expect to provide significant gains in the long-term.
Potash Corporation of Saskatchewan (NYSE:POT)
Potash Corporation of Saskatchewan Inc. was established in 1953. It is a leading global producer and seller of fertilizers and related industrial feed products. Through a series of acquisitions and internal expansions, the company took responsibility for about 20 percent of global potash capacity. It operates in 7 countries and holds the right to mine about 815,000 acres of land in Canada.
The company has a strong underlying performance. Q2 2012 earnings were negatively affected by a non-cash impairment charge of $341 million. However, offshore sales volumes reached a record of 2 million tones. Increased potash demand and profitable operations in the nitrogen segment resulted in a gross profit of $1.2 billion. It was the third-best quarterly gross margin in the company's history. Moreover, Potash reported adjusted EBITDA of $1.4 billion and cash-flow prior to working capital changes of $1.3 billion. Both variables were above the respective Q2 2011 levels.
POT is trading at around $42. Analysts estimate that the stock will outperform and reach a medium-term target price of $52. In addition, the stock provides a dividend yield of 1.97 percent. Recently, Potash approved a quarterly cash dividend increase of $0.21 per share payable November 5, 2012. Currently, the price-to-earnings ratio stands at 14.8. Forward P/E ratio is 11.40. Overall, despite concerns about low demand in China and Europe, market conditions appear positive in other regions. In Latin America, the company anticipates high earnings from increased corn plantings. Also, shipments to Asian countries outside of China and India are expected to rise throughout 2013 due to tremendous agronomic need.
Research In Motion Limited (RIMM)
Research In Motion was founded in 1984. The company designs and manufactures wireless solutions for the global mobile communications market. RIM's primary income derives from the Blackberry wireless solution, which was first introduced in 1999. Furthermore, the company holds a diverse portfolio consisting of the RIM Wireless Handheld product line, the Blackberry Playbook tablet, software development tools and hardware.
RIM used to considered as one of the fastest growing companies within the industry (see table below)
Operational Income ($ million)
Net Income ($million)
(Data obtained from the company's financial releases)
However, strong competition, especially from Android and iOS operating systems has caused the company's market share to decline. For Q2 2012, RIM's market share stood at 4.8 percent reflecting a decrease of 6.7 percent from Q2 2011. In turn, revenue from sales declined to $18.435 million. Nevertheless, estimates suggest that sales within the U.S. will return to an upward trend (see graph below).
Currently, RIMM is trading at bottom-low levels with very attractive valuations. The stock is priced at $8.06, which is very close to the 52-week low of $6.22. Price-to-sales ratio is 0.28, and price-to-book value ratio is 0.46. Current ratio stands at 2.20 and quick ratio at 1.70, both higher than the industry's respective ratios. I strongly suggest that the company will achieve a turnaround in the near future. A significant varying factor affecting future earnings is RIM's shipments to emerging markets, where RIM holds a competitive advantage. I expect the price to accelerate as we get closer to the release of the new BB10.
Suncor Energy Inc. (NYSE:SU)
Suncor Energy is a globally integrated energy company. It engages in the exploration, development, and marketing of crude oil and natural gas. The company operates in four segments, which include Oil Sands, Natural Gas, International and Offshore, and Refining and Marketing. Suncor is involved in the renewable energy sources business through six wind power projects and one of Canada's largest biofuel refineries. In addition, Suncor holds a network of 1.500 retail gas stations spread around Canada.
For Q2 2012, Suncor's total upstream production averaged 542,400 barrels of oil equivalent per day. That was about 18 percent higher than the same period in 2011. In the same period, the company recorded a 28 percent increase in operating earnings compared to Q2 2011. Cash flow from operations was $2.344 billion or $1.51 per common share.
Overall, the company reveals a strong financial position. It has a quick ratio of 1.10 and a current ratio of 1.40, which both are above the industry average level. Long-term debt-to-equity ratio remains low and stands at 0.26. Moreover, Suncor holds a 5-year average sales growth ratio of 19.23 percent, and a gross profit margin of 51.40 percent.
Suncor's stock price has outperformed several indexes, such as the S&P 500 and the Dow Jones Industrial Average. As of October 4, 2012, SU traded at $33.87. One-year stock returns account for 40.84 percent. The mean analysts' target price is $41.55, suggesting upside potential of at least 22 percent. Trailing price-to-earnings ratio stands at 11.80. Price-to-sales ratio and Price-to-book value ratio are 1.29 and 1.33, respectively. The stock has a dividend yield of 1.60 percent and earnings yield of 8.27 percent.
The company experienced some setbacks recently, with its operations in Syria being halted due to political conflicts in the region. However, Suncor's diverse service and product portfolio allows the company to remain at the forefront. The favorable ROI figures, the large amount of reserves, and Suncor's priority for its shareholders' value suggest that SU can be a profitable investment.
Westport Innovations Inc. (NASDAQ:WPRT)
Westport Innovations is a leading global developer and provider of alternative fuels and low-emissions technologies. Westport holds a wide variety of technology products, which enable petroleum engines to use natural gas. As of December 31, 2011, the company sold over 30,000 natural gas and propane engines in more than 19 countries. 65 percent of the company's total product revenue derives from the Americas, 10 percent from Asia, and 25 percent from the rest of the world.
The recent financial results were very encouraging. For the second quarter of 2012, Westport recorded consolidated revenue of $106.1 million. This represents an increase of $61.2 million or 136.3 percent compared with the prior year period. For the six months ended June 30, 2012, the company's cash, cash equivalents and short-term investments balance was $307.2 million. During the second quarter of 2012, gross margin increased by $25.3 million, or 38.2 percent of total revenue. In addition, net loss attributed to Westport amounted $6.1 million or $0.11 loss per share. For the same period in 2011, net loss was $18.1 million or $0.38 loss per share.
Currently, Westport is valued at $1.7 billion. As of October 4, 2012, the stock traded at $32. One-year stock returns stand at 27 percent. Out of 18 analysts tracked by Financial times, three have buy ratings and seven suggest that the stock will outperform the market. I strongly believe that the stock will follow upward trends in the near future. The company's recent strong performance along with the positive future growth estimations indicated signs of great upside potential.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: EfsInvestment is a team of analysts. This article was written by Fani Kelesidou, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.