Considering all the bad press Canada’s manufacturing sector gets, you’d think it was an industry on life support. That’s simply not true.
Buoyed by the recent weakness in the Canadian dollar and improving economies around the world, Canada’s manufacturing sector recently returned to levels last seen before the Great Recession in August, 2008. Manufacturing numbers are up in six of the last seven months, rising most recently to $50.9 billion in March. Sure, those numbers ignore inflation, but results are generally positive.
As technological advances like 3D printers become the norm and fuel prices continue to increase, the world is primed to produce more items close to home. Wages in China continue to increase, making the nation too expensive to manufacture some simple items. And finally, North American consumers are starting to demand higher quality items, and are willing to pay a premium to buy items that are manufactured at home.
With this in mind, here are three ways to invest in the future of Canadian manufacturing and indirectly, the health of the country as a whole. All Canadians stand to benefit if there’s foreign demand for Canadian products.
Bombardier
Thanks to attractive tax breaks issued from all levels of Canadian government, Bombardier (TSX: BBD.B) manufacturers the vast majority of its regional jets in Canada, as well as maintaining factories here to supply the North American market with rail cars.
As aging North American public transportation systems need to be replaced, the company is in a good position to get these contracts. North American cities want to support a local company, and using Bombardier will likely win brownie points with an electorate concerned about local jobs. Additionally, many medium sized cities in North America (and around the world) are planning expansions to their subway or light rail transport systems, to help alleviate problems such as congestion and pollution.
But Bombardier’s air division is where the real manufacturing growth will come from. The company is slated to start delivery of its CSeries business aircraft in the latter half of 2015. With more than 200 aircraft currently ordered, that’s enough to keep assembly line workers busy for a long time. Once airlines see the jet actually being delivered, that should boost orders for the longer term.
Magna International
With 46 facilities and almost 20,000 employees in Canada alone, Magna International (TSX: MG)(NYSE: MGA) is another major Canadian company that exports a huge amount of merchandise abroad, mostly to vehicle manufacturing plants in the United States.
Magna is simply a highly levered play on new auto sales. It manufactures many of the components that go into cars — everything from seat covers to highly specialized engine parts. Therefore, the company’s bottom line will closely follow new car sales.
Fortunately for Magna, car sales have been good lately, and there are many reasons to be bullish on them in the near-term future. The average vehicle in North America is almost 12 years old. Many of those vehicles are on their last legs. As the rest of the world gets richer, it opens up owning a car to a whole new segment of the world’s population.
Agrium
With operations around the world, Agrium (TSX: AGU)(NYSE: AGU) is one of the world’s largest producers and sellers of agricultural products, with offerings ranging from fertilizer to seeds to crop protection products.
Although Agrium is a Canadian company, its largest market is the United States. The majority of the company’s raw material exports end up south of the border, in the form of fertilizer for U.S. crops, sold via the company’s network of more than 500 retail locations in the country.
Although raw material prices have been weaker lately, the company’s long-term prospects still look strong. Many pundits predict farming as one of the next century’s major growth areas, as the world’s population continues to grow. North America has access to the land, capital, good soil and raw sources of fertilizer needed to be a leader in the space. Most parts of the continent are well suited for farming.
Canadian manufacturing is constantly changing. Rather than making consumer products like other parts of the world, Canadian manufacturers have evolved into entities that focus on high quality, more expensive products for the business market. This is the future of Canadian manufacturing, not the consumer market.
