Canadian stocks are cheap but I wonder for how much longer. The long bear market in many commodities is over. The new bull is polishing his horns and the companies that mine those commodities should see their share prices inflate right along with the price of their products. Let me show you what I mean in two charts.

Written by Sean Brodrick

First, here are the price-to-book ratios for three major indices.

  the Dow Jones Industrials - America’s leading stock index.

the S&P 500, the index of the 500 leading stocks in the U.S.

the S&P TSX Composite Index, the benchmark Canadian index which represents about 70% of the market cap of the Toronto Stock Exchange with about 250 of the biggest companies on the TSX.

The price-to-book value for a stock is just its share price compared to what its component parts would be worth if you sold them off today. It can be a way to see if something is undervalued but a low P/B ratio can also show that something is fundamentally wrong.

Look at the chart below and ask yourself: “Does the market believe that there is something fundamentally wrong with Canadian companies?” because they sure are cheaper. According to Bloomberg, the recent P/B for the S&P TSX Composite was 1.79. Compare that to 2.79 for the S&P 500 and 3.38 for the Dow.

Now, maybe there’s more economic growth in the U.S., and those Canadians are sandbagging it, right? Nope! Canada is growing at around 2.6% to 3%, according to the Bank of Canada. The U.S. is growing at around 1.9%, after 1.6% last year, and some forecasters put U.S. growth lower...

One thing it might be is the currency. The Canadian dollar has been in a long slide.

The Canadian dollar (also known as the “Loonie,” because its one-dollar coin features a picture of a loon) has slumped for years - ever since the end of the last gold bull market and that’s not a coincidence. Mining is VERY important to the Canadian economy. In fact, mining accounts for 19% of Canada’s total exports. Canada ranks in the top five countries in the global production of potash, uranium, nickel, cobalt, aluminum, platinum, sulphur, tungsten, diamonds, graphite, gold and more!

Have you seen what’s happening to mineral prices - gold, silver, nickel, zinc and cobalt - lately?...Zoom-zoom-zoom! The long bear market in many commodities is over. The new bull is polishing his horns and the companies that mine those commodities should see their share prices inflate right along with the price of their products.

Sure, we’ve seen many of these stocks rally - a bit - but we aren’t close to done. Heck, we aren’t at the end. We may not even be at the end of the beginning. Get wise, and get long Canada. You’ll want to be onboard for this rally.