The economy in the United States is much bigger. Besides, many U.S. companies also operate internationally. So, it’s a good idea for Canadians to invest in U.S. stocks. For immediate diversification, Canadian investors can start off with a stock like Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B), which provides U.S. market-like returns but with potentially lower risk.
Since 2007, BRK.B stock’s compound annual growth rate (CAGR) was about 9.25% versus SPDR S&P 500 ETF’s (ASX:SPY) return of 8.85%. Since 2012, BRK.B stock’s CAGR was 13.23% versus SPY’s 13.20%. However, in both periods, BRK.B stock provided a tad greater resiliency.
Berkshire Hathaway stock
Berkshire is a holding company with a diverse range of businesses, such as insurance, railroad, utilities, manufacturing, retail, and service. Additionally, its common stock portfolio was worth close to US$344 billion at the end of 2022. At the time, its seven-largest holdings were Apple (44% of portfolio), Bank of America (8.9%), Chevron (8.3%), Coca-Cola (7.4%), American Express (7.1%), Occidental Petroleum (3.9%), and Kraft Heinz (3.7%). As well, it had a substantial cash holding of US$128.6 billion at the end of December.
Berkshire typically keeps a lot of cash on hand to be ready to deploy in attractive investment opportunities whenever they may arise from volatile financial markets or an unpredictable economy. Warren Buffett is able to make extraordinary deals that retail investors have no access to.
A Business Insider article gave an example:
“Warren Buffett struck one of the must lucrative deals of his career when he agreed to inject $5 billion into Bank of America during the U.S. debt-ceiling crisis in 2011 … for preferred shares … Berkshire also received stock warrants granting it the right to buy 700 million of the bank’s common shares at a price of US$7.14 per share” anytime before September 2, 2021.
“The investor waited to use the warrants until the annual dividends from 700 million common shares exceeded the US$300 million in yearly income that Berkshire was receiving from its preferred stock. He exercised all of the warrants in August 2017 and covered the $5 billion cost of doing so by giving up virtually all of Berkshire’s preferred shares. The common shares it received were worth over US$20 billion at the end of 2017, meaning Berkshire more than tripled its money on paper, even before accounting for the dividends it received.”
U.S. growth stocks
Canadian eligible dividends are taxed at lower rates for Canadian investors holding shares in their non-registered accounts. Popular dividend stocks include the big Canadian banks and telecoms and utilities. Therefore, you might want to add U.S. growth stocks to your portfolio.
You can investigate ideas from SPDR Portfolio S&P 500 Growth ETF (NYSEMKT:SPYG). Its top holdings are Apple (13.4% of the ETF), Microsoft (6.7%), Alphabet (6.4%), NVIDIA (3.6%), Exxon Mobil (2.6%), UnitedHealth (2.5%), Tesla (2.4%), Amazon (2.4%), and Visa (2.1%).
The analyst consensus opinion is of that the following are undervalued stocks. Analysts believe Amazon trades at a discount of approximately 20%, UnitedHealth (18%), Alphabet 15%, Tesla (13%), and Visa (11%). They believe the other large holdings mentioned are about fairly valued.
In summary
Canadian investors can consider building a position in the U.S. market, perhaps via Berkshire Hathaway. Additionally, they can also explore solid growth stocks in the U.S., such as the five listed in the prior paragraph.
