Investing in Canada: 3 Top Stocks to Buy Now

Ill say it right up front: investing in Canada is one of my top five-year investing themes.

The Canadian dollar is cheap (in PPP terms) versus the U.S. dollar. Canadas banks are strong and more conservative than ours and its government is conservative and sensible. And unlike the United States, Canada is an energy exporter. In fact, Hydro-Quebec is the worlds largest producer of hydroelectric power.

Here then are three top Canadian stocks you should buy now to maximize your returns in 2009.

Top Canadian Stock #1

In a recent interview posted at Kudlows Money Politics. Canadian Prime Minister Stephen Harper told readers, We have, I think, the only banks in the western world where were not looking at bailouts… We havent got any TARP money… We dont have a Fannie Mae or Freddie Mac equivalent mucking around in the system.

See any difference here from the Barney Frank, Chris Dodd, Hank Paulson, Captain Geitner approach?

Bank of Nova Scotia (BNS ) is my number-one Canadian bank stock. Founded in 1832, the Bank of Nova Scotia got off to a rough start. None of the board members really knew anything about banking, and the man chosen to manage the bank swindled it to the tune of C$315,000. Not a small sum in 1844. But Bank of Nova Scotia bounced back.

Today, Bank of Nova Scotia is one of Canadas Big 5 banks. For 2008, Scotia Capital, Bank of Nova Scotias investment banking arm, was named Best Investment Bank in Canada and Best Investment Bank globally in the infrastructure sector by Global Finance magazine.

Buy Bank of Nova Scotia below trend.

Top Canadian Stock #2

The growing landscape in the energy industry is driving growth in the railroad industry. Surging ethanol production and Canadian oil sands production are at the forefront of this trend.

And Canadian National Railway (CNI ) will profit from it.

Canadian oil sands have been hit hard by the spike in oil. Competing with Saudi producers, who basically stick a pipe in the ground and wait for the oil to come out, is all about reducing the high costs of production.

Much of the bitumen, the raw material gathered from oil sands, is shipped to the Gulf Coast, where there are refineries that can refine the goo into gasoline. The cost for pipeline transport is around $17.95 a barrel.

Canadian National Railways new strategy can beat that price.

The strategy is called Pipeline on Rail, and it makes CNI the low-cost choice for oil sands miners. CNI will be shipping 10,000 barrels a day on its rail pipeline within months, and can ramp up Alberta-to-Gulf Coast capacity to four million barrels a day.

My relative-strength chart shows Canadian Nationals better-than-market performance since the end of 2007.

Top Canadian Stock #3

The Canadian oil sands are the biggest source of economically viable oil in the world after Saudi Arabia. And they have enough oil to keep cars on the road for over 100 years.

In the oil sands of Western Canada, EnCana Corp. (ECA ) is a pioneer in a method for extracting oil that wasnt considered commercially viable when oil prices were lower.

Its called steam assisted gravity drainage (SAGD). You drill two wells horizontally, one over the other. You pump steam into the first one, it heats the oil, and next thing you know, its flowing right into the second well where you can pump it out of the ground. EnCanas been developing this technology since 1996.

EnCana is also the largest natural gas producer in North America. In 2008 alone, produced 1.4 trillion cubic feet of natural gas — enough to heat nearly 11 million homes for a year.