Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Shoppers wait in the check out line during a Black Friday sale at Nebraska Furniture Mart Friday, Nov. 27, 2009 in Kansas City, Kan. (Charlie Riedel/Charlie Riedel/AP)
Shoppers wait in the check out line during a Black Friday sale at Nebraska Furniture Mart Friday, Nov. 27, 2009 in Kansas City, Kan. (Charlie Riedel/Charlie Riedel/AP)

Paul Sullivan

Black Friday deals awaiting Canadian investors Add to ...

Plentiful bargains are sure to await cross-border shoppers this Black Friday, the frenzied day for retailers that follows U.S. Thanksgiving, thanks to a Canadian dollar almost at par with the greenback.

Investors, too, may want to do some shopping down south to take advantage of the bulked up loonie, and no line ups or car trips across the border are required. And there's another reason to make the move on U.S. stocks now: many companies are looking undervalued.

There may be no reason to rush out this week to snap up U.S. equities, of course. Many analysts, such as Alkarim Jiwa, vice-president and portfolio manager for BMO Harris Private Banking, believe the loonie will continue to hover around parity with the U.S. dollar for at least a year. And if the U.S. Federal Reserve continues to keep interest rates at near-record lows, the loonie could become worth more than the greenback, making U.S. stocks even cheaper to buy with Canadian dollars.

But, with some big name companies going for what could be Black Friday prices at a time when the loonie is so strong, the deals surely won't be around forever.

Across the board, fears of a double-dip recession and low consumer confidence are keeping U.S. stock prices down. But the current bearish sentiment is starting to thaw. Public corporations are cash-rich, sitting on about $1.6 trillion, a post-Second World War high, according to New York investment guru Martin Sass, chief executive officer of money manager M.D. Sass Associates Inc. Several are announcing share buybacks, considering mergers and acquisitions, or issuing dividends.

Sass told Bloomberg Surveillance that intelligent individual investors have been pulling money out of money market funds all year - to the tune of a trillion dollars. He believes now that the fear of a double-dip recession is abating, investors can now pick up undervalued companies that come with free cash flow and attractive dividends.

If at the same time, investors can identify blue chip companies that are trading below value for specific reasons, the savings can be even greater.

Take Visa Inc. for instance. The credit card company has lost 13 per cent of its share price year to date, thanks primarily to the Durbin Amendment - legislation that will limit the fees companies collect from debit card swipes. As the U.S. catches up with Canada in the use of debit cards, Wall Street devalued the stock. But analysts expect the legislation will be rewritten to modify its influence - and Visa shares appear to have bottomed out.

FBR Capital Markets analyst Scott Valentin, for instance, calls for Visa to outperform the market and has set a target price of $96, up 25 per cent from its current price.

Another possible advantage of Visa is that it does business all over the world, so even if the U.S. recovery is slower than expected, Visa will benefit from recovery outside of North America.

An iconic American company that has fallen on temporary hard times is Hewlett-Packard Co. , which has seen its share price fall by more than 16 per cent year to date. Most of that drop came when CEO Mark Hurd was ousted after being accused of sexual harassment and improper expense accounting.

Analysts aren't sure about Hurd's replacement, Leo Apotheker, who spent 20 years at SAP AG, but they do generally believe that Hewlett-Packard is undervalued. The stock has already increased by about 12 per cent since September and Tom Harland Forester, chief investment officer of Forster Capital Management, expects it will outperform the market over the next year.

Finally, what portfolio would be complete without a garbage stock, especially one that pays a consistently high dividend. Waste Management Inc. , the U.S. leader in waste and environmental services has seriously outperformed the market over the past five years, returning (with dividends) 34 per cent, compared to the S&P 500's 7 per cent.

Unlike Visa and HP, Waste Management shares have increased in value year-to-date, and are up by about 3 per cent. But if you look at its respectable price-to-earnings ratio of 17.1, and the fact that for the past five years its net income has grown consistently in a range of 7.5 to 8.9 per cent, it looks undervalued. Add to that the fact that its dividend has grown by a compounded 9.3 per cent over the past five years - for a current yield of about 3.6 per cent - and it looks even better.

Not only does Waste Management take out the trash on a daily basis, it is also North America's largest recycler, and by 2020 it will manage 20 million tons of recycled materials.

Report Typo/Error

Next story




Most popular videos »

More from The Globe and Mail

Most popular