How well will the Canadian stock market do in 2010? If the U.S. sneezes again, will Canada catch another cold?  If there is any fallout or a double-dip U.S. recession owing to defaults on payment-option ARM mortgages, will it send global markets into another fiscal tailspin as we saw in October 2008?

By most estimates, Canada will probably continue to do well.  Canada still has one of the top safest, most stable banking systems in the world (see what Obama said).  In fact, Canada’s banks have become even safer places to keep your money over the past year since they’ve gone overboard stocking up their capital ratios – which are now well over 12-14%.

See the List of all 203 Companies in the S&P/TSX Composite

Hottest Centres of Economic Activity Across Canada

.
Regions which used to be considered “have-not” have quickly reemerged as vibrant economies (Newfoundland, Saskatchewan), while other hot locales have cooled off a bit (Alberta, Ontario).  This suggests some healthy rotation in the Canadian economy and demonstrates that it is not just one sector or region pulling all the weight (although when oil booms occur, Alberta does benefit the most).

Additionally, Calgary was recently dubbed one of the “world’s smartest cities” owing to its great infrastructure, upward mobility and economic progress – proving that even when times are tough for the oil economy, Calgary still thrives as a vibrant centre of activity.

It’s not just domestic stability and consumption that are great, though.  Canada’s got the goods the world wants, too.

Global Demand for Canada’s Goods

.
Increasing global growth in emerging markets such as India, China and Indonesia will help Canada’s resources sectors (gold, oil, mining and other commodities) as developing economies seek investments with more reward and need to gobble up precious resources.  Because of this, the Canadian dollar should remain firm even if the USD strengthens in some re-run of a “flight to safety.”

How High Can the Loonie Get?

So in your search for Canadian investments, look for stocks that anticipate more economic growth.  Certain sectors are bound to improve.  Which ones?  The ones that were previously hardest hit – so, global banking will improve, real estate will eventually improve, and technology will probably be another good bet as new products continue to be released and fear and caution leaves the markets (yes, there is still some fear and caution out there, as hard as that may be to imagine looking at some charts).

As for oil, Canadians shouldn’t bother taking on currency risk by investing in other countries’ oil companies (like Total, Shell, BP), since there are so many top-notch oil companies here.  Why take on the added currency risk?

When Will Banks Raise Dividends?

.
Of course the real question for Canadians is when will the Big 5 raise their dividends again?  Laurentian Bank was the first out of the dividend recession by raising its dividend on earnings results earlier this month.  But the Big 5 are not expected to do so for at least the first half of 2010, giving them even more fortress capital to add to their deposits.

And as loan-loss provisions subside, expect larger banking profits and cash pooling.  But since Canada’s banks are already within points of their all-time highs, it is less clear to what extent they will be able to break through and carry those highs, or if they will ease back down.  If they manage to break higher, I’d even expect a stock split in an inflationary environment.

Paul Harris of Avenue Investment Management thinks the U.S. financial world in particular is healing quite well.  Even though banks may not be lending as much as they used to right now, they are still raking in tons of profits owing to the free money and cheap interest rates they’ve received from governments.  Now that Citibank is paying back the government, it is hard to imagine further large-scale, systemic financial bogeymen who might still jump out of the closet and kill the party.

Best Canadian Bank To Invest In

Predictions for Canadian Stocks

.
It wouldn’t be a year-end article if I didn’t give some of my own predictions about which Canadian stocks will be winners in 2010.  I’m not a professional stock analyst, but I’m going to give it a shot anyway.

Choose From Canada’s Top 60 Large-Caps

TransCanada (TSX: TRP)

Growth in the new pipelines and continued demand make this stock a heavily favoured no-brainer.  It’s currently trading around $35.00 – I expect it could reach $39-$40 easily, with a dividend increase, too.

Rogers Communications (TSX: RCI.B)

As Canada’s telecommunications space grows more competitive, I think Rogers will emerge as a solid winner even if BCE and Telus merge and/or spin off their wireless divisions.  Many people bundle all their services with Rogers – phone, cable, internet, wireless. Rogers raised its dividend during the scariest part of the financial crisis and I expect it will again not long into  2010.  Currently trading around $30, I think it could easily reach $36-$37 by the end of 2010.

Bank of Nova Scotia (TSX: BNS)

With continued growth in emerging markets and Scotiabank’s international presence, this stock is poised for real gains as the world economy only improves.  Scotia is already nicely conservative with their risk-taking and is ready to grow with any opportunity.  Currently at $48, I expect it will finally break $50 (a key resistance level) and increase its dividend by the last quarter.

Manulife (TSX: MLF)

This stock upset so many investors in 2009 when it did a surprise slash of the dividend (a 50% cut) and another surprise dilution of its shares through another surprise equity issue.  The market responded by letting the share prices sink below the offering, and they have been lingering between $17-$18 since then.  But having been this badly beaten down, so unfavored, it must be time to pick this stock back up.  With the amount of fortress capital they now have, it is difficult to imagine they would encounter any real headwinds.  This stock should easily bounce back up to its $26 levels, though we may not see the dividend increase in 2010.

Crescent Point Energy (TSX: CPG)

When the economy is fully back on its feet, this pure-play oil stock is poised to rock.  It’s already pushing up at its ceiling and oil is only in the weak $70 range.  Right now, this stock can do no wrong and I expect this trend will continue in 2010.  It will have no hard time breaking through $42, and will probably increase the dividend.  Sooner, if oil prices rise sooner.

What Happens to Canadian Income Trusts Before 2011

With all this optimism, do I think there are any dangers ahead for Canada?  One danger is another round of stimulus.  It is understandable that Carney is concerned for higher valuations in the loonie, but fair value must be had.  More quantitative easing by the Canadian government will help sink the loonie, but will cause more problems ahead, especially for hard-hit Ontario.

Remaining Problems That Could Cause a Second Market Crash in 2010-2011

My recommendations: Canada, please find more and new trading partners.  Wean yourself off the auto sector.  Produce new, green technologies the world needs.  We have the rare earth metals these solar panels and hybrid vehicles need, anyway.  Let’s stay fiscally conservative and politically open and optimistic.  These are our strengths.

[disclosure: I do own long-term positions in the first four of these companies, and Crescent Point is on my "buy" list]

If you found this article useful, please retweet it on Twitter or stumble it on StumbleUpon.  I’d also love it if you subscribe to my RSS feed for free tips and posts like this one delivered right to your reader or by email (posts are not for duplication).

Related Posts

• Top 20 List of the Biggest Canadian Gold Stocks
• Success With Penny Stocks of Canadian Gold Mining Companies
• As BP Share Prices Sink, Are Your Investments Safe? Or Will BP Cut Its Dividend?
• Canadian Uranium Stocks
• BNN (Business News Network) the Perfect Resource on Canadian Stocks

Related Articles From Other Websites

• Dividend Growth Stocks: Having Your Cake and Eating it, Too
• Profit from Prices: All You Need for Profit in Stock Trading is Stock Prices
• Finding #1 Stocks: Screening, Backtesting and Time-Proven Strategies (The Zacks Series)
• Is It Time To Buy Cisco?
• Buying and Selling Stocks 101

-

Tagged as: 2010 stock market, BNS, Canadian economy, Canadian stock market, Canadian stocks, CPG, Crescent Point Energy, financial planning, Manulife, MFC, outlook for stocks in 2010, predictions, RCI.B, Rogers, Scotiabank, stock market in New Year, stocks in 2010, stocks next year, TransCanada, TRP, TSX