At a recent meeting, I was asked about stock investment opportunities in Canada. That question inspired this article. Although many Canadian companies are listed only on the Toronto Stock Exchange (or the smaller exchanges in Montreal and Vancouver), there are more than 218 Canadian companies with direct listings on US stock exchanges. ValuEngine has some interesting data to help analyze these Canadian stocks.
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My first thought was that the list of the largest stocks would be dominated by the stocks of Canadian banks along with energy and mining companies. I was right about the banks but wrong about the mining and energy stocks dominating the top ten by market cap on the list. Moreover, some of the top stocks on the list were up and coming names that I had no idea were Canadian companies. Here are the top ten names on the list.
| No. | Symbol | Company Name | Stock Price | Market Cap ($Bil.) | Revenue |
| 1 | RY | Royal Bank of Canada | 122.14 | 173.785 | 39.781 |
| 2 | TD | The Toronto-Dominion Bank | 64.47 | 112.582 | 36.855 |
| 3 | SHOP | Shopify Inc. | 78.68 | 100.365 | 7.764 |
| 4 | ENB | Enbridge Inc. | 40.37 | 87.946 | 31.764 |
| 5 | CP | Canadian Pacific Kansas City Limited | 85.36 | 81.089 | 10.393 |
| 6 | BN | Brookfield Corporation | 52.16 | 78.567 | 94.916 |
| 7 | TRI | Thomson Reuters Corporation | 168.83 | 76.573 | 7.034 |
| 8 | CNI | Canadian National Railway Company | 116.90 | 74.892 | 12.435 |
| 9 | CNQ | Canadian Natural Resources Limited | 33.41 | 71.680 | 26.820 |
| 10 | BNS | The Bank of Nova Scotia | 53.64 | 65.266 | 24.040 |
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Royal Bank of Canada and Toronto Dominion came as no surprise of course. However, I did not know that Shopify (SHOP) and Brookfield Corp (BN) were on this list. As it happens, both of these companies are rated positively by ValuEngine. Brookfield Corp. receives a 4 (Buy) rating from ValuEngine’s predictive model while Shopify Inc (SHOP) receives our top rating of 5 (Strong Buy). Let’s take a deeper look at both of them.
Shopify Inc. (SHOP) provides a commerce platform and services in Canada, the United States, Europe, the Middle East, Africa, the Asia Pacific, Australia, China, and Latin America. The company’s platform enables merchants to display, manage, market, and sell its products through various web sales channels. It also provides assistance for web and mobile storefronts, physical retail locations, pop-up shops, social media storefronts, native mobile apps, buy buttons, and marketplaces. The company was formerly known as Jaded Pixel Technologies Inc. and changed its name to Shopify Inc. in November 2011. Shopify Inc. was incorporated in 2004 and is headquartered in Ottawa, Canada. Its growth in market cap has been meteoric. In 2019, it was not listed in the top twenty in market cap in the iShares Canada ETF but has since risen to the fourth largest market cap in 2024.
Looking at Shopify through a ValuEngine lens provides some additional insights from its report. Note that we classify Shopify in the Computer and Technology sector.
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The projected year-ahead gain for SHOP is 13% as compared with an average company forecast return of just above zero for SPLG, the lowest fee S&P 500 ETF. Its profile matches many relatively young technology companies’ stocks in that it has enjoyed strong EPS growth at about 18% per year and has a 5-year annualized average return of about 19%. The flip side is that its price standard deviation of 58 is very high as is its Beta of 2.3. There is also no dividend and very high traditional valuation ratios (P/E, P/S and PEG). Even its estimate-driven forward P/E is nearly 95%. However, it is Interesting that ValuEngine’s valuation model rates it as undervalued and, in fact, in our top quartile from a valuation standpoint. While the valuation model processes valuation data covered by the traditional ratios, it is more forward looking and growth-oriented. Let’s look at where Shopify ranks among other stocks in its sector and industry in the ValuEngine Universe.
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Shopify’s top quartile Sharpe ratio indicates that its historical price returns have justified its volatility. One cautionary note for a growth stock that has already enjoyed strong 5-year, and one-year gains is that its current EPS Growth is just in line with its peers. Combined with its high volatilities, I would consider SHOP a high potential reward opportunity with very high downside risk to consider.
Moving on to the Brookfield Corporation, we find another very interesting firm.
Brookfield Corporation (BN) is an alternative asset manager and REIT/Real Estate Investment Manager firm focused on real estate, renewable power, infrastructure, venture capital and private equity assets. It manages a range of public and private investment products and services for institutional and retail clients. It typically makes investments in sizable, premier assets across geographies and asset classes. It invests both its own capital as well as capital from other investors. The firm considers equity investments in the range of $2 million to $500 million. It has a four-year investment period and a 10-year term with two one-year extensions. The firm prefers to take a minority stake and majority stake. Brookfield Corporation was founded in 1997 and based in Toronto, Canada with additional offices across Northern America, South America, Europe, Middle East and Asia.
For some insights as to why our prediction model rates Brookfield as attractive (4 = Buy) let’s take a similar look at its analytic data.
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The projected year-ahead gain for BN is 5.2%, which is above average. It has been a solid performer of late with a 75% gain during the past year. This is well above its historical average. Brookfield has a 5-year annualized average return of about 8%. Its Beta of 1.6 is reflective of the volatile markets in which it operates. On the basis of traditional ratios, its valuation seems competitive with its peers.
Shopify (SHOP) and Brookfield (BN) are two of the few highly ranked Canadian companies now that are listed in the US and that have a market cap above $1 Billion (US). There are 11 such companies that pass these thresholds right now. SHOP and BN are by far the largest. Please see the following table for the full list. Not unexpectedly, most of the remaining stocks belong to mining companies.
| Ticker | Company Name | Industry Name | VE Rating | One Year Forecast | Market Cap ($Billions) | Valuation Ranking | E/P Ratio Ranking | Earnings Growth Ranking |
| SHOP | SHOPIFY INC | INTERNET SERVICES | 5 | 13.1% | 101.4 | 82 | 38 | 50 |
| NVEI | NUVEI CORP | FINANCIAL SERVICES | 5 | 14.3% | 4.7 | 45 | 48 | 61 |
| HBM | HUDBAY MINERALS | MINING-MISC | 5 | 13.3% | 3.1 | 25 | 66 | 87 |
| EQX | EQUINOX GOLD CP | MINING-GOLD | 5 | 11.5% | 2.6 | 39 | 40 | 99 |
| ASTL | ALGOMA STEEL GP | STEEL-PRODUCERS | 5 | 13.8% | 1.0 | 40 | 36 | 100 |
| BN | BROOKFIELD CORP | REAL ESTATE OPERATIONS | 4 | 4.1% | 85.8 | 44 | 74 | 33 |
| PAAS | PAN AMER SILVER | MINING-SILVER | 4 | 9.7% | 7.8 | 31 | 39 | 97 |
| EGO | ELDORADO GOLD | MINING-GOLD | 4 | 7.4% | 3.6 | 18 | 70 | 82 |
| ERO | ERO COPPER CP | MINING-NON FERROUS | 4 | 7.4% | 2.2 | 67 | 57 | 95 |
| LSPD | LIGHTSPEED CMRC | TECHNOLOGY SERVICES | 4 | 6.7% | 2.1 | 95 | 34 | 97 |
| AG | FIRST MAJESTIC | MINING-SILVER | 4 | 7.9% | 1.8 | 64 | 33 | 96 |
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As you can see, the other companies that get buy and strong buy ratings at present are all below $10 billion dollars (US) in market capitalization while the tenth largest US-listed Canadian company is still well within standard institutional guidelines of over $10 billion. That said, one company in the list that stands out for potential growth among the more speculative companies is Nuvei Corporation (NVEI) which has a top forecasted gain of 14.3%. With a Beta of 2.5, it is not an investment for the faint-hearted.
Nuvei Corporation (NVEI) provides payment technology solutions. Its platform enables customers to pay and/or accept payments worldwide regardless of the location, device, or preferred payment method. Its solutions comprise a fully integrated payments engine with global processing capabilities, a turnkey solution for frictionless payment experiences, and a broad suite of data-driven business intelligence tools and risk management services. The company was formerly known as Pivotal Development Corporation Inc. and changed its name to Nuvei Corporation in November 2018. Nuvei Corporation was founded in 2003 and is headquartered in Montreal, Canada. Its report is available free of charge upon request to readers of this article.
For more mainstream choices for US investors to access the Canadian ETF market, there are three ETFs for country representation. All are very similar in composition.
This table contains the essential data:
| Symbol | Name | Assets Under Mgmt. ($Bill) | Price | Inception | ER | Annual Dividend Yield % | P/E Ratio |
| BBCA | JPMorgan BetaBuilders Canada ETF | 7.34 | $72.29 | 8/7/2018 | 0.19% | 2.30% | 12.7 |
| EWC | iShares MSCI Canada ETF | 2.82 | $41.52 | 3/12/1996 | 0.50% | 2.00% | 12.4 |
| FLCA | Franklin FTSE Canada ETF | 0.41 | $37.65 | 11/2/2017 | 0.09% | 2.35% | 13.0 |
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The lists of top 10 holdings are nearly identical as are the ETFs’ objectives. All three offer a market-cap weighted representation of the mainstream Canadian market. From an ETF industry perspective, it is highly unusual for an ETF to enter the market more than 20 years after the first mover and usurp its AUM (assets under management) lead by a wide margin. That’s just what JP Morgan BetaBuilders (BBCA) has accomplished in six short years of existence against iShares MSCI (EWC). There are two readily apparent advantages for the newer ETF, a much lower fee and its structure allows it to distribute dividends quarterly rather than semi-annually. That said, BBCA’s fee is still twice as large as that of the Franklin FTSE Canada ETF (FLCA) that entered the market the year prior to BBCA with the ultra-low fee of 0.09% (9 basis points). In general, JP Morgan has only been in the ETF market for seven years and is already in the top five in AUM. This is incredibly successful growth to this veteran observer. Besides the branding, one reason that institutions prefer BBCA is much greater trading volume and tighter trading spreads, However, as an individual investor, I see little reason to prefer BBCA to FLCA given the fee differences. One addition that would be interesting in the future would be an ETF, either active or algorithmic, that attempts to produce superior returns to the underlying index. Given the fact that active management has been the fastest growing segment of the ETF industry, I would be surprised if that didn’t happen within the next two years.
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By Herbert Blank
Senior Quantitative Analyst, ValuEngine Inc
www.ValuEngine.com
support@ValuEngine.com
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