The steep decline in the value of the Canadian dollar against the US dollar has raised economic alarm bells. However, for some stocks, it could be good news.
Canadian businesses with a strong US presence, or those that report earnings entirely in US dollars, may be particularly well-placed to benefit, as the rising US dollar increases the value of their earnings from the United States once translated into Canadian dollars.
Earlier this year, the Canadian dollar fell to C$1.47 (its lowest point in the last 11 years), losing nearly 25% of its value against the US dollar since its most recent high of C$1.20 in June 2021. While it has since rebounded to C$1.42, it remains under pressure amid looming broad-based US tariffs on Canadian exports. Higher interest rates in the US and a relatively strong US economy have also boosted the value of the US dollar against the Canadian dollar.
Canadian Stocks With High US Exposure
Among the Canadian stocks covered by Morningstar analysts, a handful generate significant revenue from the US market, making them prime beneficiaries of a strong greenback. Among them, apparel maker Gildan Activewear GIL leads with the highest proportion of its revenue coming from the US, followed by the business information services firm Thomson Reuters TRI, heavy equipment auctioneer RB Global RBA, energy major Enbridge ENB, tech firm Descartes Systems Group, and leading athleisure maker Lululemon Athletica. These companies benefit from their US exposure and stand to gain when converting their earnings into Canadian dollars.
However, these stocks are trading significantly above their Morningstar fair value estimates, making them overvalued.
Undervalued Canadian Stocks With High US Dollar Exposure
For value-seeking investors, we screened stocks under Morningstar’s Canada equity coverage for sizable US exposure and fair value discounts. Three stocks stood out:
Here’s a closer look at these three undervalued names.
Bombardier
- Fair Value Estimate: C$107.00
- Price/Fair Value: 0.84
- Economic Moat: Narrow
- Capital Allocation Rating: Standard
- Morningstar Rating: ★★★★
Canadian aerospace and defense giant Bombardier designs, manufactures, markets, and maintains its aircraft family of business jets. While the company generates revenue in diverse markets globally, 64% of its revenue is derived from the US market. Bombardier generated a staggering USD 8.6 billion in revenue in 2024, up from USD 8 billion the year before, of which USD 5 billion came from US-based customers.
Over the years, Bombardier has vastly improved its service network since becoming a stand-alone business jet manufacturer. “In 2024, Bombardier accounted for roughly 50% of the estimated USD 4 billion aftermarket opportunity for its installed base of aircraft,” says Morningstar equity analyst Nicolas Owens, who adds that the firm will continue capturing shares of this market as it further improves capacity and solidifies customer relationships.
Services revenue grew at an annualized rate of 18% over the past three years and eclipsed USD 2 billion for the first time in 2024.
“The addressable market has also increased substantially as the Bombardier fleet grows and spends more time in the air,” says Owens, who recently raised the stock’s fair value to C$113 from C$107, after updating his “forecast to include higher share capture of a larger aftermarket.”
Owens cautions that the firm might be affected if the Trump administration ordered 25% tariffs on US imports from Canada.
Nutrien
- Fair Value Estimate: C$99.00
- Price/Fair Value: 0.77
- Economic Moat: Narrow
- Capital Allocation Rating: Exemplary
- Morningstar Rating: ★★★★
The world’s largest fertilizer producer by capacity, Nutrien makes nitrogen, potash, and phosphate. Of these crop nutrients, the firm’s main focus is potash, where it is a global leader with almost 20% market share. The company’s operations span North America to Australia.
Nutrien, which reports its financial results exclusively in US dollars, has recently seen some downward pressure on its stock price, owing to the looming threat of a 25% US tariff on Canadian goods.
The US is Canada’s largest potash export market. A 25% tariff would increase potash prices, which could force farmers to cut usage, causing a demand weakness. However, Morningstar strategist Seth Goldstein says that since “potash is a key nutrient required for crop yield growth, we think US farmers would pay higher costs to apply the fertilizer rather than forgo its use.” He adds that the company could cut production to offset any softness in demand and keep prices stable.
Goldstein further notes that the US accounts for just 15% of global potash demand and that growing demand in larger markets such as Brazil and China could also help cushion the demand shock.
After the company’s quarterly earnings report, Goldstein expressed confidence that “management’s 2025 guidance for retail profit growth and fertilizer volume growth, as well as rising fertilizer prices, should drive profit growth.”
He recently raised the stock’s fair value to C$99 from C$97 due to currency movements, and views the stock as “undervalued, trading roughly 25% below our fair value estimate and in 4-star territory.”
West Fraser Timber
- Fair Value Estimate: C$128.00
- Price/Fair Value: 0.89
- Economic Moat: None
- Capital Allocation Rating: Standard
- Morningstar Rating: ★★★
West Fraser is a softwood lumber company that also specializes in wood panels and pulp products. The company produces its wood products globally, with lumber mills in British Columbia, Alberta, Europe, and the Southeastern US. The US accounts for as much as 67% of its total revenue.
The company’s fortunes are closely tied to the macroeconomic environment in the US and Canada, as well as mortgage rates that affect housing affordability. Elevated interest rates and the ongoing economic uncertainty have weighed on West Fraser’s financials.
Yet, the company’s balance sheet remains sound. “Although the company operates in an industry with high unleveraged business risk underpinned by the high revenue cyclicality from its housing-related end markets, it carries low balance sheet risk,” says Morningstar equity analyst Spencer Liberman.
Over half of West Fraser’s oriented strand board sales are for new construction, which experienced robust demand over the last few years. “We expect additional growth in single-family housing starts to drive demand for OSB in 2025 as existing-home sales remain low,” says Liberman, who forecasts consolidated sales to increase at a roughly 3.4% compound annual rate.
The stock is trading at a 10% discount to its fair value, which Liberman recently increased to C$128 from C$125, due to an increase in the US dollar/Canadian dollar exchange rate.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
