Three picks for a weak dollar
Today's Financial News - Posted October 15, 2009
A weakening dollar played a large role in the Dow’s recent rise. Take advantage of the action with these three Blue Chip exporters.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): Talk about “irrational exuberance.” Now that the Dow has clipped the magical 10,000 mark, all sorts of investors are ready to get back in the game.
All across the morning news were quotes from local waitresses, dry cleaners and retirees expressing their newfound interest in the equities market now that it has “recovered.”
“I can finally start investing again,” I heard one uninformed investor proclaim.
Better late than never, I suppose.
Their renewed interest will only help those of us that have ridden the markets all the way from their horrific March lows.
But the question remains, is Dow 10,000 worth celebrating?
My answer is a hardy no.
The equities market has rallied over the last few weeks in great part due to the weakening American dollar. The nation’s exporters are drooling over the increased revenue potential as the value of their overseas payments increases come conversion time.
Our pain, their gain
Since March, the value of the dollar versus the euro has fallen by more than 15%. That means an exporter that earned a dollar for every “unit” of European sales in March, now puts $1.15 into the bank.
The weaker the dollar gets, the higher that earnings figure will climb.
That’s okay to an extent. But if the dollar gets significantly weaker, the ensuing economic trouble will far outweigh the benefits of increased earnings for exporters.
In the meantime, investors are wise to take advantage of the increased profit potential of domestic exporters.
One Blue Chip that benefits from a weaker greenback is Caterpillar (NYSE:CAT). The heavy-equipment manufacturer’s international revenue makes up nearly three-quarters of its total sales.
That figure will only grow larger as the overseas governments and investors turn to alternative currencies and higher international interest rates
Even Detroit wins
The final Detroit stronghold, Ford (NYSE:F), is another weak-dollar investment. The automaker will see increasingly large foreign revenues as BRIC countries lead a global economic rebound.
In 2008, Ford was fourth in international sales. Now that General Motors has filed for bankruptcy and Toyota (NYSE:TM) is having growing pains of its own, there is a good chance Ford may gain some territory.
As it does, its profits will be leveraged higher by a weaker dollar.
Finally, don’t forget Hewlett-Packard (NYSE:HPQ). As the world’s largest computer manufacturer, the company will greatly benefit as growing foreign economies increase their technological demand.
With about 50% of the company’s sales coming from overseas, Hewlett-Packard (NYSE:HPQ) will have nearly $50 billion to leverage with weaker dollars. That will create nice figures in future earnings reports.
The Dow is climbing as traders discount a weaker dollar. The trend is good, but will only last so long. Take advantage of it while you can.
Next Article: Fat Americans versus lean China
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October 20th, 2009 at 1:12 pm
With the ever weakening dollar this would be a good time to lock in a historically low rate on a fixed term mortgage! joeb