According to RBC, Canada makes up just over 3% of the world’s capital markets, while the U.S. makes up a much more substantial chunk. Canadian investors can unlock greater potential in their portfolios by looking south to U.S. stocks.
You can get greater diversification and a more well-rounded portfolio with fundamentally strong companies in certain sectors. For example, investors have more choices to get exposure to the tech, healthcare, and consumer staples sector via U.S. stocks.
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Tech stocks
Investors can look to buying top-notch tech stocks like Microsoft (NASDAQ: MSFT). The tech stock has delivered a total return of approximately 25% in the last 12 months and 1,000% in the last decade. It will continue to grow as a cloud leader. Currently, it expects to continue with double-digit earnings-per-share growth.
Microsoft earns a rare AAA S&P credit rating. Therefore, it is a highly desirable holding in one’s diversified portfolio. The problem right now is that the stock appears to be fully valued. So, interested investors should aim to buy on pullbacks of at least 15% if possible. Canadian investors can also consider buying Microsoft stock as a Canadian depository receipt (CDR) on the NEO exchange in the Canadian currency.
Microsoft stock offers a small yield of about 0.8%, but it has increased its dividend at a good clip of about 12.3% per year over the last decade.
Healthcare stocks
If you’re looking for better value, the healthcare sector may be a better place to look right now. For example, Johnson & Johnson (NYSE: JNJ) is another rare company with the highest-quality S&P credit rating of AAA.
Johnson & Johnson is a defensive stock with highly stable adjusted earnings. The diversified healthcare conglomerate has declined 10% in the last 12 months. At $158.52 per share, it trades at about 15.3 times earnings and offers a dividend yield of 3%.
Some investors may be waiting for J&J to complete spinning off its consumer health division as Kenvue in November, at which time J&J will be essentially left with the medical device and pharmaceutical businesses.
Consumer staples stocks
There aren’t too many consumer staples stocks to choose from on the TSX. On the U.S. exchanges, consumer staples stocks like Pepsi (NASDAQ: PEP) and Procter & Gamble (NYSE: PG) have just experienced a bit of a pullback. Canadian investors may be able to pick some shares up on this weakness.
As you probably know, Pepsi is a snack and beverage company with an umbrella of well-known brands like Lay’s, Cheetos, Doritos, Mountain Dew, and of course, Pepsi. Procter & Gamble sells household products, including these well-known brands: Bounty, Cascade, Charmin, Olay, Oral-B, Pampers, Pantene, and Tide.
Because these consumer staples businesses experience stable growth over time for their products that consumers buy through good and bad economic times, their stocks command premium valuations. At writing, Pepsi and P&G trade at about 25.7 and 24.7 times their respective blended earnings. However, according to the analyst consensus 12-month price targets, the two consumer staples stocks trade at discounts of about 10% and 12%, respectively. They also offer dividend yields of 2.8% and 2.6%, respectively.
