But the strength of the dollar is actually bad for Canadian businesses. The Canadian economy is heavily dependent on exports to the United States. The higher the dollar rises, the less attractive these exports become. In addition, sales to the United States have a negative currency effect when the dollar is strong.
For these reasons, a strong loonie is generally bad for Canadian stocks. The higher the dollar rises, the less valuable exports are.
However, not all Canadian equities are affected this way by a strong loonie. As you are about to see, domestically focused stocks stand to gain in a strong loonie environment, as a stronger dollar simply means lower import costs for these companies. Most of the major Canadian publicly traded companies are certainly not in this boat. But a few are. Here are three that are worth considering.
Suncor Energy is an energy company strongly oriented towards the internal market. It extracts and refines the crude, then sells it directly to Canadian consumers at Petro Canada stores. This business model means that Suncor’s revenues are not too affected by currency exchange rates. As long as Canadians fill up at the pump and the price of gasoline is healthy, Suncor will make money. On that note, the price of oil has risen steadily over the past several months, with WTI futures trading decently priced at $ 42 at the time of writing.
Dollarama is a classic example of a business profiting from a strong Canadian dollar. Like Suncor, it sells primarily to Canadians, which means it does not lose any of its exports. There is also another factor at play: a heavy reliance on imports, which become cheaper when the dollar rises. According to Dollarama’s 2019 ESG Report, 90% of Dollarama’s products originate from China, the United States and Canada. The Canadian dollar has risen not only against the US dollar but also against the yuan, so it looks like Dollarama’s spending will go down.
Canadian tire (TSX: CTC.A) is another Canadian retailer that should benefit from a strong dollar. Like Dollarama, it sells to Canadians and imports from various suppliers around the world. This places the business on the winning end of currency fluctuations.
But Canadian Tire has another trump card up its sleeve that Dollarama doesn’t: it’s cheap. After being beaten in the COVID-19 market crash, CTC.A is trading at just 15 times its profits. The beating was understandable, as the Canadian Tire business was inflamed by the pandemic. But it will rebound when the pandemic is over, and its stock likely will, too.
Speaking of big Canadian stocks …
Freshly published! 5 actions under $ 49 (FREE REPORT)
Motley Fool CanadaThe Leading Market Team has just released a brand new FREE report revealing 5 “Very Cheap” Stocks You Can Buy Today for Under $ 49 a Share.
Our team believes these 5 stocks are critically undervalued, but, more importantly, could potentially make quick-acting Canadian investors a fortune.
do not miss anything! Just click on the link below to grab your free copy and now check out all 5 of these stocks.
Andrew Button, a silly contributor, has no position in any of the stocks mentioned.