Canadians: Diversifying Into the S&P 500? 2 U.S. Stocks I’m Watching

Canadians who want to build a more diversified long-term stock portfolio can explore the U.S. exchanges for additional ideas.

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Canadians should diversify their stock portfolios into the United States, which makes up a much larger market. Here are some of the U.S. stocks I’m watching.


There’s good reason why the stock of the non-alcoholic beverage and snack company Pepsi (NASDAQ:PEP) tends to go up over time. It has high earnings quality. Specifically, its adjusted earnings per share (EPS) rises in most years. And when it goes down in those odd years, it doesn’t go down by a lot. So, its earnings are resilient even when it does take a tumble.

For example, in the last 20 years, its adjusted EPS declined in only four years. In one year, the EPS was down about 7%, while in the other three years it witnessed declines of only 0-2%. Other than having high earnings quality, Pepsi’s 10-year total returns were approximately 13% per year, which is very good for a low-risk investment.

At $185.71 per share at writing, the top consumer staples stock trades at about 26.5 times its blended earnings. This seems to be a pricey multiple to pay for a company that’s expected to increase its EPS by about 7–8% per year over the next three to five years. However, given its earnings stability and quality, it’d take a lot to weigh the stock down to an attractive level. Even now, the analyst consensus suggests the stock is fairly valued. At this level, it also offers a safe dividend yield of about 2.7%.

For reference, PEP stock’s 15-year dividend growth rate is about 8% per year. Its last dividend increase was 10% last month. Its future dividend growth should more or less align with its earnings growth.

Raytheon Technologies

Raytheon Technologies (NYSE:RTX) is another U.S. stock I’m watching. The aerospace and defense stock appears to offer good growth for the multiple it’s trading at. In the first quarter, the company reported sales growth of 10% year over year, including 10% organic growth. It also had a record backlog of US$180 billion, including US$21 billion of new orders, supported by continued demand in global airline travel and defense systems.

Management forecasts 2023 adjusted EPS of about US$4.97, which would imply a forward price-to-earnings ratio of about 19.7. This is a reasonable multiple for estimated adjusted EPS growth of about 10–11% per year over the next three to five years.

In fact, at US$98 per share, the 12-month analyst consensus price target suggests RTX stock trades at a discount of about 11%. It also offers a dividend yield of about 2.4%. Assuming the company executes well and is conservative, further assuming the top industrial stock experiences no fair valuation expansion, it’s possible for the stock to deliver long-term returns of about 12% per year.

For reference, RTX stock’s 15-year dividend growth rate is about 8% per year. Its last dividend increase was 7.3% in April. Based on its projected EPS growth rate and sustainable payout ratio, it could continue increasing its dividend by at least 7% per year over the next few years.

Investor takeaway

Investing in stocks on the U.S. exchanges can help you diversify your portfolio, including gaining exposure to international companies and the U.S. dollar.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng has no position in any of the stocks mentioned. The Motley Fool recommends Raytheon Technologies. The Motley Fool has a disclosure policy.

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