Five Canadian Stocks Hedge Funds Like

The Canadian market has had a decent year so far, with the benchmark S&P/TSX Composite Index gaining more than 12% for the year. While the sharp pullback in oil prices over the past two years had a negative impact on the Canadian economy, the outlook for oil has improved somewhat this year, providing Canadian equities with a much-needed rebound. However, the index still remains below its 2014 highs.

In this article, we’ll take a look at the five Canadian stocks that the hedge funds in our database like the most, which are Valeant Pharmaceuticals International Inc. (NYSE:VRX), Barrick Gold Corporation (USA) (NYSE:ABX), Potash Corporation of Saskatchewan (USA) (NYSE:POT), Canadian Pacific Railway Limited (USA) (NYSE:CP) and Kinross Gold Corporation (USA) (NYSE:KGC). We’ll also analyze how these stocks have performed and what they may have in store for investors.

At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

A total of 31 funds that we track held $722.9 million worth of Kinross Gold Corporation (USA) (NYSE:KGC) shares at the end of the June quarter, accounting for 11.90% of the company’s outstanding shares. At the end of the March quarter, 28 funds held approximately $417.94 million worth of the company’s shares. Kinross Gold Corporation (USA) (NYSE:KGC) announced earlier this month that it had repaid $250 million in senior notes that were due September 1. With the repayment, the company now has no other debt maturities until 2020. Kinross believes that its strong balance sheet and liquidity position provides it with the financial flexibility needed to fund organic growth opportunities.

Among the hedge funds in our system, 32 held $946.90 million worth of Potash Corporation of Saskatchewan (USA) (NYSE:POT) shares at the end of the June quarter, up from 23 funds with $793.78 million worth of Potash Corporation shares at the end of March. The collapse of the Belarusian Potash Company in the summer of 2013 completely changed the dynamics of the potash market. Given the increasing competition in the market, producers have been looking to consolidate. Last year, Potash Corporation of Saskatchewan (USA) (NYSE:POT) launched a hostile bid for its German rival K+S, though it failed to take over the German potash producer. This week, Potash and Agrium Inc. (NYSE:AGU) announced a merger that would create a global leader in the fertilizer industry. According to the terms of the merger agreement, Potash shareholders will receive 0.40 common shares of the new company for each common share of Potash that they own, while Agrium shareholders will receive 2.230 common shares of the new company for each common share of Agrium that they own.

We’ll check out hedge funds’ three favorite Canadian stocks on the next page, eh?

Hedge funds grew less bullish on Canadian Pacific Railway Limited (USA) (NYSE:CP) during the second quarter. A total of 36 hedge funds in our database were long $3.02 billion worth of the company’s shares at the end of March, which fell to 31 funds holding $2.13 billion in Canadian Pacific Railway positions by the end of June. The funds held 11% of the company’s outstanding shares in aggregate at the end of the June quarter. Canadian Pacific Railway Limited (USA) (NYSE:CP) recently announced the departure of its Executive Vice President and Chief Financial Officer Mark Erceg, who stepped down on September 9. The company has appointed Nadeem Velani as Interim Chief Financial Officer. Velani joined the company in March 2013 and most recently served as its Vice President of Investor Relations.

Barrick Gold Corporation (USA) (NYSE:ABX) has been one of the best performing stocks this year, much to the pleasure of the 53 hedge funds that we track which were Barrick shareholders on June 30, holding approximately $3.83 billion worth of its shares. Barrick’s good performance comes as no surprise, given that gold mining stocks had been virtually written off at the end of last year. However, Barrick Gold Corporation (USA) (NYSE:ABX) has gained more than 140% this year, driven by a bounceback in gold prices. Gold mining companies are now enjoying stronger margins as a result of the gold price fall and bounceback, as they had to cut their costs significantly during the downturn.

It has been a tough 52-week stretch for Valeant Pharmaceuticals International Inc. (NYSE:VRX), which has led many hedge funds to throw in the towel on the stock. At the end of the March quarter, 71 of the hedge funds that we track held $3.15 billion worth of Valeant shares, which fell to 60 hedge funds holding $2.11 billion in shares at the end of June. Nonetheless, hedge funds are overweight Valeant, holding 30.80% of its outstanding shares. The stock has lost nearly 90% of its value in the last year amid allegations of accounting impropriety and questions over the company’s drug pricing policy. Valeant Pharmaceuticals International Inc. (NYSE:VRX) has also seen the departure of its long-time CEO as a result. Under its new CEO, Joseph Papa, Valeant has been focusing on restructuring its operations, including the sale of some of its non-core assets.

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