A decade ago, Canadian investors loved U.S. stocks. Today, with the loonie 40 per cent stronger than 10 years ago and many U.S. blue chips trading at just one-third of their former valuation multiples, Canadians are apathetic about U.S. stocks.
"In our view, apathy spells opportunity," says Murray Leith, vice president and director of research for Odlum Brown Ltd. In Vancouver.
Odlum Brown's latest report looks at the performance and valuation differences of some U.S. and Canadian blue chips over the decade, with surprising results.
Spotlighting nine U.S. companies and three Canadian ones, OB concludes that the U.S. businesses on average increased share profit by 190 per cent and dividends by 334 per cent.
In comparison, the Canadian companies boosted share profit by 110 per cent and dividends by 234 per cent. But the change in valuations over that period tell a very different story: the U.S. stocks appreciated on average about 22 per cent compared with an average gain of nearly 200 per cent for the Canadian issues.
Examining Wal-Mart and Royal Bank, OB found that Wal-Mart almost tripled its earnings per share and increased its dividend more than fivefold between 1999 and 2009. Wal-Mart's stock, however, declined by 23 per cent over the period.
On the other hand, shares of Royal Bank have risen by 255 per cent over the decade, while the bank's EPS doubled and the dividend rose by 326 per cent.
"From a fundamental perspective, Wal-Mart's business has performed significantly better than Royal Bank's and yet, that did not translate into better stock performance," Mr. Leith wrote.
Here are the other U.S. stocks the report looked at: 3M, UPS, Lowe's, Coca-Cola, Procter & Gamble, Colgate-Palmolive, Sysco and Johnson & Johnson. The two other Canadian stocks used in the comparison were TransCanada and Finning International.