The Motley Fool Canada

Helping the word invest…better.

3 Ways to Invest in the Growing Canadian Manufacturing Sector

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.

3 more ways to profit

Looking to expand your portfolio's horizons? The Motley Fool has put together a special FREE report featuring "3 U.S. Stocks Every Canadian Should Own." To get the names and ticker symbols of these three stocks, just click here to access your free copy!

FREE! 1 Top Canadian Stock for 2014 and Beyond

Constructing a portfolio is like building a house, chief analyst Iain Butler says. You want to build it on a foundation of "rock solid, proven, long-term money makers." And do we have a winner for you... Click here now for our FREE report and discover 1 top Canadian stock for 2014 and beyond!

By submitting your email address, you consent to us keeping you informed about updates to our website and about other products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Statement and Terms of Service.

A MOTLEY FOOL SPECIAL REPORT

A True Buy-and-Forget Stock

Fool contributor Nelson Smith has no position in any stock mentioned in this article. Magna International and Agrium are recommendations of Stock Advisor Canada.

See all posts by Nelson Smith
The Motley Fool