For years, I have been advocating a trading strategy to my readers that can still be profitable today: buy American stocks in Canadian dollars.
As the U.S. dollar continues to deteriorate in value against other world currencies, precious metals and the Canadian dollar have been rising in price. In March of 2009, $1.00 Canadian just bought $0.80 U.S. Today, $1.00 Canadian buys $1.02 U.S.
So let’s pretend in that, March of 2009, an American investor bought $10,000 U.S. worth of shares on the TSX, Canada’s equivalent of the NYSE, and let’s say that stock sold for $25.00 Canadian. You would end up with 500 shares of the stock.
Almost two years later, you sell the stock at the same price you paid, $25.00 Canadian. But when you convert your proceeds, 500 shares at $25.00, you get back $12,790 U.S. You made 27.9% just on the currency exchange, as the U.S. dollar has been falling in price against the Canadian dollar.
That’s not all…
Since March of 2009, the TSX has gone up 79%. Hence, being invested in Canadian stocks has generally doubled money for American investors over the past two years.
But there’s more…
With the U.S. dollar expected to continue falling in value against other world currencies, with precious metals prices nowhere near their top, with interest rates in Canada expected to continue rising, the strategy of buying quality stocks (many of which are American companies) on the main Canadian stock exchange is still a very profitable strategy for American investors.
For the more adventurous, buying quality Canadian stocks on the TSX will prove to be an even more profitable strategy. Canada is rich in resource stocks and the TSX is home to some of Canada’s biggest resources companies.
How to invest in stocks: you can buy Barrick, Newmont Mines, Goldcorp, Silver Wheaton and others on the NYSE, but why not buy them on the TSX where you can also profit on the currency play?
Michael’s Personal Notes:
If there is a company that has become a dinosaur, a company that has not kept up with the times, and a stock that I believe is ripe for short sellers (I don’t say that often on these pages), it is Sears Holdings Corp. (NASDAQ/SHLD).
Sears is still the largest U.S. department-store chain. The company reported last week that its fourth-quarter profit fell 13% after same-store sales declined during the holidays. Christmas 2010 was the best season for retailers in three years—except for Sears. The market and consumers are favoring more target retailers that have niches. Sears fails to fit this bill. It has not carved out a niche; it continues to be “the store for everything,” which doesn’t work in the Internet age.
Sears’ stock is down from a high of $200.00 in early 2007 to $83.00 today. Unfortunately, unless a private equity firms buys Sears and sells off its hard assets, I don’t see much of a future for this dinosaur stock.
Where the Market Stands; Where it is Headed:
The Dow Jones Industrial Average opens this morning up 4.7% for 2011. It’s the end of February and stocks haven’t fared too badly so far this year. Sure, there’s a lot going on with the markets these days between the civil unrest in Libya, spiking oil prices, and concerns over China’s economy needing even more cooling, but, when in doubt, I go back to the basics.
There is plenty of money on the sidelines ready to enter this market, too many advisors are calling for a market correction, and the more problems in the Middle East, the more American stocks become a safe haven. Short to long term, I believe that the U.S. has insurmountable economic problems. But immediate term, there continues to be few alternatives to American stocks. Immediate term, stocks are going up.
What He Said:
“In 2008, I believe investors will fare better invested in T-Bills as opposed to the stock market. I’m bearish on the general stock market for three main reasons: Borrowing money in 2008 will be more difficult for consumers. Consumer spending in the U.S. is drying up, which will push down corporate profits.” Michael Lombardi in PROFIT CONFIDENTIAL, January 10, 2008. The year 2008 ended up being one of the worst years for the stock market since the 1930s.