Sentiment on Canada, at least as measured by the decline in the Canadian dollar, is cooling. The loonie is near a three-year low at USD0.9458 as of Friday afternoon.

But economic fundamentals up north remain solid.

Despite widespread worry and a prevailing sense that a US-style debacle is in the works, the Canadian housing market is not imploding.

The financial system is sound, with Canadian banks boasting solid return on equity figures and complying with stricter Basel III capital requirements.

The Bank of Canada is under new leadership, as Mark Carney has left for his new gig with the Bank of England. New governor Stephen Poloz is maintaining the old monetary policy.

Slower Chinese growth will impact Canada’s resource-intensive economy, but this impact has largely been priced in. It should be noted too that metals account for just 12 percent of Canada’s exports, while energy commodities–where prices are relatively stable–account for about 25 percent.

Another combined 22 percent of exports are wood products and autos, which are both linked to two parts of the US economy that have stabilized in the aftermath of the Great Recession and are showing solid if unspectacular growth, housing and motor vehicles.

At the same time, several stocks in the How They Rate coverage universe–including one new addition–are not specifically tied to Canadian economic fortunes. In some cases their stories are more continental, in others more global.

But at these levels, due in part to the fact that Canada has fallen out of fashion, they represent good value.

Canadian Crude: Getting Better

The price of crude oil has spiked above USD100 on concern about the political situation in Egypt and a potential spillover effect in the broader Middle East. US inventories also declined.

These are short-term factors that have piqued investors’ psychology. Longer-term factors, including new railroad capacity and the reversal and expansion of the Seaway pipeline, which now can carry 400,000 barrels a day of crude from Cushing to the Texas gulf coast, have eased the glut at the Cushing, Oklahoma terminal.

And Western Canada Select (WCS) was USD91 per barrel at the Hardisty terminal, according to trading data from Flint Hills Resources.

The narrowing differential is great news for western Canadian producers and an improvement over the USD16.50 average differential last month. In January it was as high as USD40.

This bodes well for Portfolio favorites ARC Resources Ltd (TSX: ARX, OTC: AETUF), Crescent Point Energy Corp (TSX: CPG, OTC: CSCTF), Enerplus Resources Corp (TSX: ERF, NYSE: ERF) and Vermilion Energy Inc (TSX: VET, NYSE: VET), one of this month’s Best Buys.

All but ARC are trading below buy-under targets.

Support for Western Canada Select and the narrowing of the WCS/WTI differential is rooted in the increasing use of rail to get output to refineries. Further support will come from TransCanada Corp’s (TSX: TRP, NYSE: TRP) proposed Energy East pipeline, which will carry crude from Alberta to refineries on Canada’s east coast.

The 14,000-kilometer pipeline currently carries natural gas across from Alberta to Quebec. TransCanada wants to switch portions of the system to carry up to 850,000 barrels of oil east, potentially as far as New Brunswick, home to privately held Irving Oil Ltd’s 300,000-barrel-a-day refinery.

Alberta’s provincial government has signed a memorandum of understanding that commits it to ship up to 100,000 barrels per day on Energy East over a 20-year period. The commitment, the first for the proposed pipeline project, could be worth as much as CAD5 billion.

Egypt produces only about 700,000 barrels a day in a global market of 91 million barrels a day, and it is a net importer, according to the International Energy Agency.

It’s more important as a transit point. Modest amounts of crude pass through Egypt’s Suez Canal, which is too small to accommodate ultra-large crude tankers, and through the Suez Mediterranean Pipeline. Together they account for about 2.2 million barrels a day, according to the Energy Information Administration.

The most important factor for the Canadian crude economy is infrastructure. And here progress is being made. Eighty-six percent of the more than 800,000 barrels per day of oil refined in Quebec and Atlantic Canada is imported. That’s a potential domestic market of 700,000 barrels for Canadian oil supplies, and that’s what TransCanada is proposing to serve.

According to a Canadian Association of Petroleum Producers (CAPP) forecast oil production in Canada will rise to 6.7 million barrels per day by 2030, up from 3.2 million barrels per day in 2012. This includes oil sands production of 5.2 million barrels per day by 2030, up from 1.8 million barrels per day in 2012.

Transportation is a major challenge. Rail is a partial solution, though new loading facilities are being built and new tank cars are being manufactured specifically for this purpose.

Canadian National Railway (TSX: CNR, NYSE: CNI) sees “tremendous growth” potential for crude-by-rail, tough Canadian Pacific Railway (TSX: CP, NYSE: CP) is more cautious.

Most likely is that rail provides a bridge until more pipeline capacity is built. According to oil marketer Gibson Energy Inc it costs as much as USD11 a barrel to carry crude by pipeline along the route that would be served by TransCanada’s Keystone XL pipeline compared to as much as USD21 per barrel by train.

At the same time, US railroads shipped a record volume of crude in the first quarter, according to the Association of American Railroads. And in Canada shipments should double to more than 300,000 barrels per day by the end of 2013, according to Peters & Co.

Increased crude deliveries have helped CN and CP offset slower growth in freight such as grain and coal. Future expansion will be driven by oil-sands producers shipping heavy crude, in addition to light oil from North Dakota’s Bakken region, according to CN.

Both stocks have enjoyed significant rallies over the past 18 months. Canadian National and Canadian Pacific are holds at these levels.

The need to expand pipeline infrastructure to accommodate the projected increase in oil supply and to deliver it to markets beyond Western Canada remains acute.

The US Gulf Coast refineries are seeking additional supplies of heavy oil to offset declining supplies from Venezuela and Mexico. By 2020 at least 1.1 million barrels per day could be supplied to this market, up from the 100,000 barrels per day at present.

There are also significant long-term market opportunities beyond Canada and the US. According to the Energy Information Administration, China and India, the fastest growing economies in the world, will import a combined 15.7 million barrels per day by 2020, up from 9.2 million in 2012.

TransCanada’s Keystone XL and Enbridge Inc’s (TSX: ENB, NYSE: ENB) Northern Gateway project will help Canadian producers meet North American and Asian demand.

TransCanada Corp is a buy under USD47. Enbridge is a hold.

Building Revival

Aggressive Portfolio Holding Acadian Timber Corp (TSX: ADN, OTC: ACAZF) is a great way to play the Canadian lumber export trade, which is enjoying a solid revival along with the US housing market.

According to the US Census Bureau housing starts in May rose to a better-than-expected 974,000, 20.8 percent above May 2012 figures, driven by still historically low mortgage rates, improvement in the labor market and high consumer confidence. This is, to date, the best year since 2008.

Housing affordability is at near-record highs and mortgage underwriting standards are becoming more accommodative.

And Acadian’s key wood products customers have benefited from exceptionally strong lumber and panel prices over the past six months, encouraging them to increase production, supporting demand and pricing for softwood sawtimber. Management expects this to continue throughout 2013.

Markets for hardwood pulpwood continue to be reasonably strong, with Acadian’s major hardwood pulp customers all operating and actively competing for deliveries, suggesting prices will remain relatively stable in 2013.

Global demand trends for market pulp appear to be positive too, with relatively balanced inventories, and these markets are expected to tighten in the near term as demand continues to improve and supply is restricted owing to seasonal maintenance.

Demand for hardwood pulpwood in Acadian’s operating region is further supported by the current strong OSB demand and prices as these operations rely on the aspen component of our hardwood pulpwood.

Markets for hardwood sawlogs remain stable and appear to have a similar outlook for the foreseeable future. Prices for softwood pulpwood recovered on a year-over-year basis, as demand came back into better balance, but the market for this product remains fragile. Acadian continues to be able to sell all of its biomass with a stable outlook for customer-level prices.

Based on a consensus forecast that management conceded “is somewhat of a moving target,” Acadian expects steady growth in housing starts through 2015 at levels “expected to result in very strong markets for timber aimed at solid wood products markets.” The company will also enjoy the benefits of higher prices for its products.

Acadian Timber, which is yielding 5.9 percent, is a buy under USD14.

Movie Star

Cineplex Inc (TSX: CGX, OTC: CPXGF) has enjoyed a solid run over the past five years, rising from below CAD15 on the TSX to CAD37 and change as of this writing due substantially to a string of stellar franchise films.

But no less an eminence than Steven Spielberg–who practically invented the form–has warned of Hollywood’s emerging overdependence on the epic.

Cineplex management, however, continues to make moves to build and strengthen its underlying business.

Canada’s largest movie exhibitor last month agreed to pay Empire Company Ltd (TSX: EMP/A, OTC: EMLAF) CAD200 million for 26 theaters with 218 screens, mostly in eastern territories including Nova Scotia, New Brunswick, Newfoundland, and Prince Edward Island.

The deal gives Cineplex “a truly national, coast-to-coast presence,” said CEO Ellis Jacob.

Recent efforts to develop media and promotional partners will also be augmented by a national platform. The acquisition also gives Cineplex a 78 percent share of the Canadian exhibition market.

Management will likely upgrade some of the acquired theaters, adding the company’s UltraAVX large-screen auditoriums, padded recliner seating and gaming rooms.

Cineplex will fund the deal with its existing credit facilities but “will continue to assess its financing options.” The transaction is likely to close by the end of the third quarter.

The 26 theaters Cineplex is buying generated about CAD113 million of revenue in 2012. With upgrades management forecast the deal will be “immediately accretive to earnings per share and adjusted free cash flow per share.”

Cineplex surged to a new all-time high of CAD37.98 in the aftermath of the deal, reflecting the added revenue, growth potential based on the company’s prior execution following other acquisitions and the assumption that Hollywood will continue to churn out “tent-pole” films that drive box office sales.

Management announced a 6.7 percent dividend increase in May; it will make its next declaration on or about July 22. It’s not likely that the dividend will rise again until next May; all five of the company’s dividend increases since 2007 have been announced in May with effect in June.

Now the stock is trading more than 17 percent above our current USD30 buy-under target. It’s priced at nearly 24 times trailing 12 month earnings and more than three times book value.

We like Cineplex, a lot. The company has done great work to diversify its revenue streams, and it is now even more dominant in Canadian theater exhibition. However, although Hollywood has found formula that’s working, the failure of just a couple of its tent-pole titles could spell a fallow box office season.

This new acquisition and the additional cash flow it will generate should support another dividend increase in May 2014, likely on the order of 7 percent to 8 percent. We’re boosting our buy-under target accordingly. Cineplex is a buy on a pullback to USD32.25.

Corn-Fed

Ag Growth International Inc (TSX: AFN, OTC: AGGZF) reported first-quarter numbers that reflected the severity of the 2012 US drought that devastated corn crops, as sales declined by 17.1 percent and adjusted earnings before interest, taxation, depreciation and amortization (EBITDA) fell by 40.4 percent compared to the first quarter of 2012. Earnings per share were down to CAD0.26 from CAD0.42 a year ago.

Ag Growth specializes in the grain handling, storage and conditioning equipment. Its fortunes are tied to annual harvest conditions. The good news is the US Dept of Agriculture has forecast a robust year for corn planting and a strong rebound in yields for the 2013 season.

This should put pressure on corn prices. But it will also spur demand for farm equipment and storage.  US farm income is forecast at record levels, and international opportunities should also act as key drivers.

The company’s line of farm equipment ensures that the production needs are met for large commercial and industrial scale farms specializing in grain handling and storage.

Ag Growth has executed a solid growth-through-acquisition strategy over the past decade, incorporating all of the grain storage and handling value chain combined with specialty manufacturing into its business model. It maintains industry-leading margins.

A diversified product line will help the company capitalize on a rising trend in grain storage and handling demand as well as the potential for more volatile crop prices. The company’s focus on international sales should also contribute to not only diversifying its revenue seasonality but should also serve to add value by capturing larger, more industrial-scale grain handling operations in lesser served markets.

Ag Growth, which is yielding 6.7 percent, is a solid buy up to USD40.

New Car

We’re adding Magna International Inc (TSX: MG, NYSE: MGA), which designs and manufactures systems and parts of automakers, to How They Rate coverage this month.

Magna is a leading automotive supplier with a strong financial profile based on conservative policies and solid operating results in the aftermath of the Great Recession. Conditions in the company’s North American market have remained favorable, reflecting an ongoing automotive recovery.

US light vehicle sales reached approximately 14.5 million units in 2012, significantly above the 10.4 million unit mark recorded in 2009, as the market progressively reverts to secular demand levels of approximately 16 million units.

Europe is a drag, burdened by overcapacity, exacerbated by a decline in light vehicle demand as volumes have fallen to multi-decade lows in several markets, aggravated by the Continent’s economic challenges.

In markets included in Magna’s Rest of World, the Chinese automotive industry continues to grow, albeit at more moderate rates vis-à-vis recent historically high levels, while volumes in Brazil were higher.

In 2012 Magna posted record financial results, as revenue rose by 7 percent to approximately USD31 billion and earnings before interest and taxation grew 24 percent to USD1.5 billion, underscoring improved global production volumes driven by an ongoing recovery in Magna’s key North American market.

Magna is making progress in its effort to become more geographically diversified, but North America remains the key drive of results, accounting for approximately three-quarters of total operating earnings over the past four years.

Results for the RoW segment are impacted by management’s efforts to grow in markets such as China and Brazil.

The company has been active on the acquisitions front, spending USD525 million in 2012 on “bolt-on” deals.

A traditionally shareholder-friendly company, Magna has raised its dividend five times since it resumed its payout following the Great Recession. The company is currently engaged in a buyback program that will see up to 12 million shares purchased for cancellation through November 2013.

Strong operating cash flow enables the company to invest in growth and fund its capital management activity.

For the first quarter of 2013 Magna posted sales of USD8.36 billion, an increase of 9 percent over the first quarter of 2012 as a result of increases in its North American, RoW and European production sales, complete vehicle assembly sales and tooling, engineering and other sales.

Management announced a 16.4 percent dividend increase in March 2013, to CAD0.32 per share. Magna International, which even after a strong run is trading at just 12.25 times trailing 12 month earnings, is a buy under USD80.