When Bank of Canada governor Stephen Poloz announced a surprise interest rate cut last week, he called the oil price slump “unambiguously negative” for the Canadian economy.
And while the oil slump has its downsides, Mr. Poloz’s words were a bit strong. After all, the low oil price is good for oil-importing provinces like Ontario and Quebec, which together account for 60% of the Canadian economy.
More crucially, low oil prices have crushed the Canadian dollar, which is now worth barely US$0.80. Let’s take a look at three beneficiaries of the weak Canadian dollar that should at least be on your watch screen.
1. Sun Life Financial
Since late November, when the oil price and Canadian dollar really went into freefall, Sun Life Financial Inc. (TSX:SLF)(NYSE:SLF) shares have fallen flat as well. But investors seem to be missing a very important fact: Sun Life should receive a nice windfall from the low Canadian dollar.
The company generates nearly half of its net income from the United States, but reports all of its income in Canadian dollars. So with the U.S. dollar becoming so much more valuable, Sun Life gets a boost to income without doing anything differently.
Flight simulation specialist CAE Inc. (TSX:CAE)(NYSE:CAE) should benefit a lot more than Sun Life. One reason is that CAE is much more global — in the most recent quarter, Canada accounted for only 7% of revenue, while the United States accounted for over a third.
As a bonus, lower oil prices are a boon for the airline industry. Consequently, airline companies are sure to purchase plenty of aircraft and train plenty of pilots. This makes CAE’s outlook all the more promising.
3. Magna International
Auto parts manufacturer Magna International Inc. (TSX:MG)(NYSE:MGA) should benefit even more than CAE. The company does not break down revenue by country, but surely generates far more revenue in the United States than in Canada. Better yet, Magna has a big manufacturing presence in Canada (the company has almost as many employees in Canada as it does in the U.S.).
In other words, Magna is now paying employees with cheap Canadian dollars, while selling its products for valuable U.S. dollars.
And the story gets even better. Thanks to low oil prices, there’s a great outlook for auto sales. Even larger vehicles, which don’t come with great mileage, should sell well. And Magna specializes in parts for larger vehicles.
So remember Mr. Poloz, the news isn’t all bad. And as an investor, these are companies you should be paying attention to.