These Canadian Stocks Offer Big Potential

A fascinating study recently was released about upward mobility in America and
the state of the middle class. Miles Corak, an economist at the University of
Ottawa, found that just 16% of Canadian men born into the bottom one-tenth of
the nation's income bracket remained there as adults. In America, 22% of those
in the bottom tier stayed in the bottom tier. Even more interesting is that in
America, 26% of those born into the top one-tenth of income brackets stayed
there vs. just 18% of Canadians who stayed at the top through adulthood. I
highlight this not to spark a political debate about class warfare but simply
to point out one of the biggest opportunities for investors right now: our
neighbors to the north. Canadian stocks, like their middle class, have fared
very well despite the mortgage downturn and resulting global recession. Sure,
the Canucks offer no shortage of energy and mining stocks with giants Suncor
Energy (NYSE: SU ), Canadian Natural Resources (NYSE: CNQ ) and Barrick Gold
(NYSE: ABX ) as some of the top Canada stocks by market cap investors should
look beyond commodities for opportunities in this nation. Here are a few reasons
why: Gross Domestic Product in Canada expanded at a 0.9% rate in Q3 of 2011. The
average quarterly rate of growth dating back to 1961 is just 0.84% meaning
Canada is not just doing well compared with the 2009 downturn, but its also
doing well compared with long-term results. Canada is one of the few developed
nations that is a net exporter of energy. As oil hovers around $100 per barrel
again and fears of inflation persist, Canada's economy enjoys some insulation
from energy price shocks. As American banks melted down in 2011, the Canadian
bank index hit an all-time high. Royal Bank of Canada (NYSE: RY ) is up 13% in
the last five years, The Bank of Nova Scotia (NYSE: BNS ) is up 22% and
Toronto-Dominion Bank (NYSE: TD ) is up 34%. Compare that with Citigroup (NYSE:
C ), which lost 94% in the same period, and Bank of America (NYSE: BAC ), which
is off 86% in five years. So how can you invest in the Canadian boom? The
iShares MSCI Canada Index Fund (NYSE: EWC ) is a good place to start. It
includes all of the aforementioned stocks with Royal Bank of Canada, TD,
Scotiabank, Suncor and Barrick the top five holdings right now. However, the
risk to investors is that this Canada ETF is overweight in these big players
with roughly 32% of the fund tied to financials, 27% tied to energy and 20% tied
to materials. That doesn't really give you a very diverse way to play our
neighbors to the north. And with Royal Bank of Canada taking up a whole 6% of
the entire portfolio with one position, you might just be better off buying a
Canadian financial stock or two and save the 0.54% expense fee of the iShares
ETF. Royal Bank of Canada yields a nice 4% dividend to boot, so why not start
there? If you're looking for a way to get more in touch with Canada's
consumers and broader economy, try Canadian Pacific Railways (NYSE: CP ). Like
domestic rail stocks Union Pacific (NYSE: UNP ) and CSX Corp . (NYSE: CSX ),
Canadian Pacific is a bellwether for broader economic activity and exports as
more freight moves around the rails. Canada is heavily reliant on metal and oil
production, so commodity news really holds sway over the nation's economy. But
don't underestimate the power of Canadian financial stocks or the stability of
its middle class during these tough times. While global investing immediately
conjures up images of China or Brazil, don't overlook our friends to the north
if you want to diversify your portfolio. Jeff Reeves is the editor of
InvestorPlace.com. Write him at editor@investorplace​​.com , follow him on
Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook . Jeff
Reeves holds a position in Alcoa, but no other publicly traded stocks.