We get it - tech stocks are super-popular with investors these days.
But it’s nice to see some non-tech names being added to the list of U.S. stocks that can be bought as Canadian Depositary Receipts. Traded on Canada’s NEO Exchange, CDRs are basically a fractional investment in an underlying U.S. company with a built-in currency hedge. However much the U.S. stock goes up or down, that’s what your CDR does. There’s no static from changes in the Canada-U.S. exchange rate.
The latest batch of eight new CDRs includes some tech companies, but also big names in other sectors. There’s Pfizer Inc. (PFE-NEO), the drug giant behind one of the key COVID-19 vaccines, as well as big box retailer Costco Wholesale Corp. (COST-NEO) and credit card company Mastercard Inc. (MA-NEO). The most intriguing addition for investors with a contrarian view might be Berkshire Hathaway Inc. (BRK-NEO), Warren Buffett’s legendary holding company.
On the New York Stock Exchange, Berkshire shares traded at just under US$280 at the beginning of December. The CDR version traded at just under $22 Canadian. This price comparison highlights how CDRs make the shares of big U.S. companies more accessible to Canadian investors. Another benefit is cost efficiency - retail investors get more favourable Canada-U.S. exchange rate when buying the BRK-NEO than if they used an online broker to buy BRK.B on the NYSE. Foreign exchange for clients buying and selling U.S. stocks is a profit centre for brokers.
The list of BRK’s subsidiary companies is long and varied - insurers, plus makers of brickers, batteries, industrial lubricants, underwear, candy and furniture. There’s not a lot of tech in the mix, which helps explain why the BRK hasn’t in recent years been the S&P 500-beating juggernaut it once was.
Up a total of about 24 per cent over the last two years, BRK isn’t exactly beaten down. But against the tech-heavy S&P 500′s 44-per-cent gain, BRK does seem to be somewhat out of favour. The six-month numbers accentuate this take - BRK was down 4.3 per cent, while the S&P 500 gained 8 per cent.
A legit concern if you’re eyeing CDRs is whether they catch on enough to ensure a tight bid-ask spread when buying and selling. With low-volume stocks and exchange-traded funds, you may find yourself having to pay more than the current market price to complete a purchase of shares, and accept less than the market price to sell.
CIBC reports that the average per-day number of client trades in CDRs has grown from 700 in September to 5,500 at the start of November, and that assets have grown to more than $290-million. This isn’t blow-out growth, but it’s enough to suggest investors are definitely interested in CDRs. Broadening the selection of available stocks can only help.
-- Rob Carrick, personal finance columnist
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Stocks to ponder
Oatly Group AB (OTLY-Q) and Beyond Meat Inc. (BYND-Q): Investors are treating plant-based food producers as if they were week-old kale salads. Maybe it’s time they stopped turning up their noses. As bad as things look right now, the long-term case for betting on plant-based food hasn’t changed. Environmental pressures, health concerns and growing qualms about animal suffering are still likely to prod people toward eating more green things and fewer bloody things in the years ahead. Someone is going to profit from this trend. To be sure, there are many uncertainties, especially when it comes to timing. To that, add some ugly recent results. But as Ian McGugan argues, the plunging stock prices of two of the leading makers of vegetarian grub suggest the market may be overreacting to temporary factors.
Alimentation Couche-Tard Inc. (ATD-B-T): On Nov. 18, the share price closed at a record high of $52.30. However, it has since tumbled 12 per cent, closing below $46 on Dec. 1. The stock is currently trading at an attractive valuation with a price-to-earnings (P/E) multiple of 14.7 times the fiscal 2023 consensus earnings estimate, well below its historical average multiple. The stock has a 12-month forecast return of 24 per cent and 13 buy recommendations by analysts. Jennifer Dowty looks at the investment case for buying the shares on the recent dip.
Looking for safety from market volatility? Here’s something that just isn’t working any more
Investors have followed a playbook during the recent bout of pandemic-related market volatility. When major indexes are tumbling, jettison airlines, energy stocks and anything else associated with a return to normal. For safety, buy technology heavyweights that can withstand more lockdowns. But some observers have discovered that at least one typical response to volatility has gone missing: the U.S. dollar’s reputation for being a haven in times of trouble. David Berman explains.
Canadian dollar seen higher if Bank of Canada takes lead on rate hikes
Analysts are sticking with bullish forecasts on the Canadian dollar despite uncertainty related to the Omicron COVID-19 variant, expecting oil prices to rebound and the Bank of Canada to hike interest rates before the U.S. Federal Reserve. Here’s what a Reuters poll of 32 strategists found out.
A trillion-dollar wager that interest rates won’t rise far
Bond markets are betting that Federal Reserve policy tightening may end before interest rates hit the Fed’s 2 per cent inflation target. And that may not be all that far off into the future. Yoruk Bahceli of Reuters explains.
Others (for subscribers)
Number Cruncher: 10 well-valued U.S. industrial stocks in an improving sector
Friday’s Insider Report: Director invests over $1-million in this small-cap stock
Thursday’s Insider Report: Chairman seizes a buying opportunity in this REIT amid market volatility
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Compiled by Globe Investor Staff