Source: The Canadian Press

The United States offers tempting bargains for aggressive equity investors who aren’t put off by the ongoing volatility of the Canadian dollar, investment managers say.

“We think it’s a great time to be buying healthy, cheap companies,” says John Power, senior vice president of U.S. equities and portfolio manager for Fidelity Investments.

While some investors are concerned about the underlying health of the American economy, many firms are sitting on clean balance sheets, hold huge cash reserves and are in a position to reward shareholders, he said in an interview from New York City.

Buying into the U.S., he adds, is one of the best ways to tap into companies that will supply the growing middle class in emerging global markets.

“I wouldn’t tell you that there’s anything wrong with the opportunities in Canada, I would say that if you agree that the developing world represents the opportunity of a generation, then I’d tell you that the U.S. market is a much more diversified way to play that.”

Power says the opportunities are present in a broad range of industries, including retail, financial services, construction, agriculture, mining equipment producers and auto manufacturers.

Emerging markets won’t remain just a source of cheap products, they will become a sustainable source of middle class demand, Power argues.

“They’re not just going to sell to us, they’re going to buy a ton from us and we’re looking for companies who get that and who are going to supply them.”

American-based companies should be part of an investors overall game plan because they also provide global exposure, adds Adrian Mastracci, president of KCM Wealth Management Inc. What requires some thought is how much to put into a U.S. investment strategy and whether the timing is right.

Mastracci says a balanced portfolio might contain 15% U.S. equities which investors can add to over several months to minimize the impact of currency fluctuations.

“If you’re worried about the currency, you can buy the hedged products…that should take one of the risks out of the equation,” he said from Vancouver.

Irwin Michael, portfolio manager for ABC Funds, looks for deep value, dividend-paying companies whose management “has skin in the game.”

“You have to be opportunistic and the markets are very cyclical, so we think this is an opportune time to be very selective,” he said in an interview from Toronto.

Like investment guru Warren Buffet, he doesn’t believe the U.S. is headed towards a double-dip recession despite the fact it’s limping along at a slow pace.

Michael says economic concerns, high unemployment and lagging consumer confidence have created a poor psychology in the United States that favours selective investments.

He expects conditions that favour “stock picking” will last another six to 12 months before an improving economy pushes it back to its traditional dynamic.

Most of the value lies in small- to medium cap U.S. stocks, especially smaller companies that have been forsaken as nervous investors opt for those with greater liquidity, he said.

“We’re just nibbling away. We have a list of 10 stocks we’d like to buy. They’re not quite at our price, but on balance we’re watching, whereas 12 months ago we weren’t.

Names on his list include recreational vehicle furniture maker Flexsteel Industries (Nasdaq:FLXS) and airplane leasing companies Fly Leasing (NYSE:FLY) and Seaspan (NYSE:SSW).

Finance author Gordon Pape urges caution because the volatile loonie risks eating away at gains.

Pape says investors can avoid currency risks by taking advantage of the many great opportunities to invest in undervalued Canadian companies or those with large exposures in the United States.

Among them is insurance company Manulife Financial Corp. (TSX:MFC), whose shares have fallen by 39% over the past year, and CN Rail (TSX:CNR) which is one of North America’s leading transportation companies.

“There are opportunities elsewhere but given the current situation, given the fact that the Canadian economy seems to be in better shape than most countries, given the fact that our banking system is in good shape, I’d be looking for opportunities in Canada.”

He said the dynamic of investing in the U.S. changed in 2002 when the loonie began to appreciate.

Pape is looking for a couple of signs before he would increase his U.S. weighting. They include the Canadian dollar trading in a fairly narrow range and more evidence of a U.S. economic recovery.

While the economic recovery will remain a concern over the coming year, regulatory issues that have hammered sectors like financials, health care and energy will lessen this year, says Mark Bayko, U.S. portfolio adviser for RBC Dominion Securities.

“We would be very sector specific rather than just buying the market outright,” he said, noting that the U.S. market offers exposure in consumer staples, health care and technology stocks not available in Canada.