With the US dollar increasingly perceived to be walking on shakier ground, and no significant signs in sight that the US will be able to pay off its debts without radical quantitative easing (i.e., effective devaluation of the dollar); continued unemployment levels near 10% and no short-term fix in the ongoing housing slump (more foreclosures expected throughout 2010 and 2011), more Americans are beginning to look north for investment opportunities that might provide a safer haven for their money.

And Canada is probably one of the best places American investors could park their money abroad.  Canada’s federal debt is actually lower than it was ten years ago, and percentage of debt-to-GDP is the best among developed nations (Germany ranking second).  It may be largely oil money, but there’s no denying that Canada is the new Switzerland: probably the best fiscally-managed country in the developed world.

Do you know all 20 of the largest Canadian gold stocks?

I’ll repeat a few facts that certainly almost all Canadians will be aware of  by now:

1. Several of its banks were rated the safest in the world in the midst of the financial crisis of 2008-2009.

2. None of Canada’s banks needed (or asked for) a government bailout.

3. Canadian banks are all trading at or slightly above their 52-week highs – even a month ago, before the big comeback rally started last year.

4. Fiscal health extends beyond the banking sector – right before the credit crunch and market crash, two of Canada’s provinces were completely debt-free (Alberta and Newfoundland) with a third (Saskatchewan) close behind.

5.  Canada also has a sub-prime housing market, but perhaps due to different regulations and a different culture of consumption, there was never the debilitating wave of foreclosures that hit the U.S.  Then again, there were no “NINJA” mortgages in Canada, either.

Canada’s 60 largest companies – Meet the TSX 60 Index

What Canadian Stocks To Buy First

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So you want to buy at least a few blue-chip Canadian stocks to help protect the value of your wealth.  I’d say that’s a great idea.  You don’t have to get so “exotic” as Brazil or China to diversify.  The Canadian dollar will do just as well.

In fact, the biggest risk to the Canadian dollar in terms of fundamentals is only that 75-80% of Canada’s export trade is tied to the U.S. market.  But Canada is working hard to diversify and this number will improve.

I’ve written quite a bit about the Canadian stock market – see some of the posts in the sidebar.  The main stock exchange is the Toronto Stock Exchange (TSX, or, TSE).  Most all large-cap and mid-cap TSX stocks will also trade on the NYSE – and not even in ADR form.  So I won’t repeat all of that information here – I’ll just recommend you check out some of the links in this post.

So here are three recommendations for dipping into the Canadian stock market.  These picks will give you diversified exposure to the main sectors of the Canadian market and all are considered top-notch leaders in their sector.  These are all stocks with which some analysts will tell you “you can’t go wrong” on if you’re a long-term investor.

Royal Bank of Canada (TSX: RY)

Canada’s largest bank by market cap.  Five star rating by many measures.  American investors need to understand that banking works differently in Canada.  A totally different culture.  Banks are more respected institutions than they are in the U.S. (for good reason, I’d offer).  But I can talk more about that in a different post.  Royal Bank will singlehandedly expose you to a wide array of the Canadian market.  The banks are the tollbooths of the overall economy.  All Canadian companies use them.  The economy can’t improve without the banks improving, also.

Comparing Canada’s Banks – Best One to Invest In?

TransCanada Pipelines (TSX: TRP)

This is a pipeline stock – another “gateway” or “tollbooth” sort of stock.  Like Royal Bank, it grows its dividends on a regular basis and has great growth prospects ahead.  Because it is a pipeline, it is exposed to less direct commodity risk (as you would be if you invested directly in an oil sands play, as much more “sexy” as that might be). TransCanada will thus give you exposure to the “energy” sector of the market.

Ten Best Defensive Canadian Stocks

Agrium (TSX: AGU) or GoldCorp (TSX: G)

This one is a tough pick, because so many of Canada’s great materials companies are pure plays, so it depends on which resource story you like most.  Gold is strong, but so is agriculture.  Canada’s not only a huge oil producer but is the world’s largest source of potash, which is necessary for making fertilizer.  Potash Corp. of Canada is the largest company, but it’s a pure play, whereas Agrium is a bit more diversified and can benefit from other areas of the agricultural sector.  Goldcorp is one of the quickest growing large-cap gold stocks – and it also pays a dividend (albeit a meagre one).

Biggest Canadian Energy and Materials Stocks

Don’t like this list?  Check out the list I compiled of all 203 or so stocks in the TSX Composite.  You could also look at ETFs, of course.  But if you want individual stocks and just want to get started with some good names, I’d definitely say jump on the top two, and then maybe do a bit of your own further research on what you’d like for a company in the materials/resources space (there are so many to choose from).

The bottom line is, don’t overlook Canada when you’re thinking about foreign investing.  If you consider it based on the economic fundamentals it is tied to, Canada has the strongest currency in the developed world – the only reason it isn’t mentioned with the other “majors,” I imagine, is the size of the currency pool, which makes it unsuitable for massive sovereign wealth fund conversions.

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