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Rob Carrick

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An eye for a bargain

Rob Carrick

 

The S&P 500 stock index is home to some of the world's most dominant corporations and right now they're all on sale for Canadian investors.

Every time our dollar climbs higher in value against the U.S. dollar, it makes the cost of buying American stocks a little bit cheaper. If you've got an eye on the long term and can stand some near-term volatility, then think about doing a little cross-border investing.

The problem with investing in the U.S. market as 2007 winds down is that things are so unsettled. The economy is slowing, dollar is weak and the subprime mortgage mess is still working its way through the system in the form of huge corporate writedowns and decimated profits. Many stocks have fallen hard in price lately, notably those in the financial sector. Couple this with the rising purchasing power that Canadians have through the loonie's ascent and you have a strong argument for buying U.S. stocks now for the long term.

Ever thought of owning Microsoft or Cisco Systems? Both were hit hard when the stock market sank in the second week of November, Microsoft falling by 9 per cent and Cisco by 12 per cent. You could have bought Cisco shares for about $27 (Canadian) on Nov. 9, which compares to $30 one year earlier. The striking thing about this comparison is that Cisco shares were up 7 per cent in U.S.-dollar terms over the past 12 months, even while currency fluctuations were making it much cheaper for Canadians to buy them.

General Electric is an interesting possibility right now for Canadian investors looking to buy American. The stock has been an utter mediocrity for years now, with a cumulative three-year gain of just over 8 per cent. For the first 11 and a half months of 2007, the gain was a weak 3.1 per cent. Why buy GE? For starters, it's a global industrial behemoth with interests in power-generation, industrial automation products, medical imaging and diagnostic equipment, household appliances and lighting products. Also, the shares yield about 2.90 per cent and the consensus analyst rating on GlobeinvestorGold is a firm "buy." Canadians are always being told to get more global exposure in their portfolios; owning GE is a way to do that.

Johnson & Johnson is a similar story. The shares of this health-care giant have been a pitiful performer for years now, but they do have a couple of things going for them right now. One, they pay a dividend that rises consistently from year to year and today yields about 2.6 per cent. Two, companies in the healthcare field tend to do well in rough stock market conditions. In fact, Johnson & Johnson advanced a little more than 4 per cent in the six months to mid-November in U.S.-dollar terms, while the S&P 500 fell a little over 3 per cent. Just try finding a blue-chip healthcare name like Johnson and Johnson in the Canadian market. There simply aren't any.

The financial sector offers some of the most intriguing opportunities to buy downtrodden U.S. stocks, but you have to be careful here. Citigroup and Merrill Lynch have already announced huge multi-billion-dollar writedowns and investors are clearly concerned that there is more bad news to come. Stocks like Washington Mutual and Citigroup have been hit so hard that their dividend yields have soared to 11.6 per cent and 6.6 per cent, respectively. Those are staggeringly high numbers for large-capitalization financial stocks and they suggest that investors are worried about dividend cuts.

While the Canadian dollar remains strong, make a shopping list of U.S. stocks you've always wanted to own and then monitor them on GlobeinvestorGold. With our currency soaring and many U.S. stocks struggling, now could be the buying opportunity of the decade for patient investors. Remember: our dollar won't be on top forever and, when it falls, it's going to work to the advantage of people who bought U.S stocks today.

Rob Carrick has been writing about personal finance, business and economics for more than 12 years.

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