The Canadian economy has recovered from the recent economic downturn and exhibited growth in the month of July. Economists had largely written off growth for the period. However, in the latest report released on Sep 29, an unexpected spurt in Canada’s economic growth was supported by an increase in manufacturing activity.
Under conditions where the country’s economy is growing despite global economic shocks, adding stocks from Canada seems prudent.
Canada’s GDP Beats Market Forecasts
Per the latest report from Statistics Canada, the country’s GDP expanded 0.2% in July to $1.37 trillion on the back of strength in the manufacturing sector. Economists had predicted that the economy would grow, albeit by a meager 0.1%. On a year-over-year basis, the country’s GDP advanced 2.4% in the month as opposed to expectations of 2.2% growth.
Such growth also points to the fact that the Bank of Canada would raise the benchmark interest rate by 0.25% in October. Since mid-2017, Canada’s central bank has increased the rates by as many as four times. Currently, the benchmark interest rate in Canada is pegged at 1.5%.
Factors Supporting Growth
The biggest push to economic growth came from the manufacturing sector, which in turn gained from higher-than-usual output levels in July. Manufacturing output advanced 1.2% in the month to its highest level since November 2017. Such gains were made possible by strength in chemical, petroleum and coal products.
Further, wholesale trade gained 1.4% month over month, and the transportation and warehousing sectors grew 0.9% in July. A rise in rail transportation led the overall transportation sector higher. Finally, the service sector in the country, which constitutes about two-thirds of the economic output, surged 0.2% in the month. Also, the goods-producing side of the Canadian economy gained 0.3% in July.
U.S. & Canada Sign New NAFTA Deal
Hours before the midnight deadline on Sep 30, Canada’s Trudeau administration agreed to sign the USMCA. This came after over a year of tense negotiations between the United States and Canada.
Canada has agreed to limit its auto exports to the United States to 2.6 million vehicles. Such an arrangement allows Canada to avoid a 25% tariff on automobile imports that the Trump administration is largely expected to impose.
The deal also states that an automaker can avoid import duties imposed by the United States on any of its automobiles if about 75% of its total production takes place within North America. Such an arrangement benefits both countries.
4 Best Choices
Unexpected growth in Canada’s GDP in July reflects the country’s resilience to harsh winters and global economic downturns. Such a development has not only boosted the loonie, but also increased prospects of a rate hike in the Bank of Canada in October.
Further, the USMCA deal will benefit the overall North American economy. In this context, we have selected four Canadian stocks that are expected to gain from these factors. These five stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Lululemon Athletica Inc. LULU is a designer and retailer of athletic apparel and accessories.
The company is based out of Vancouver and sports a Zacks Rank #1. The expected earnings growth rate for the current year is 38.09%. The Zacks Consensus Estimate for the current year has improved 11.2% over the last 60 days.
Mountain Province Diamonds Inc. MPVD is engaged in mining and marketing of rough diamonds across the globe.
The company is based out of Toronto and carries a Zacks Rank #2. The expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved more than 100% over the last 60 days.
The Toronto-Dominion Bank TD is a provider of personal and commercial banking products and services in Canada as well as the United States.
The company is based out of Toronto and carries a Zacks Rank #2. The expected earnings growth rate for the current year is 16.80%. The Zacks Consensus Estimate for the current year has improved 1% over the last 60 days.
Northern Dynasty Minerals Ltd. NAK is involved in extraction, recovery, exploration and sale of uranium in the United States.
The company is based out of Toronto and has a Zacks Rank #2. The expected earnings growth rate for the current year is 82.35%. The Zacks Consensus Estimate for the current year has improved 75% over the last 60 days.
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