To help you identify stocks that are benefitting from a falling dollar, I combed the Weiss Ratings database. I created a stock “screener” including companies domiciled in the 10 foreign countries and traded here on major U.S. exchanges, writes Mike Larson.
With the Federal Reserve hiking interest rates and the U.S. economic data coming in solid, you’d expect the dollar to be flying. But instead, it’s sinking like a stone.
Just look at this chart of the U.S. Dollar Index, which tracks the performance of the buck against a basket of six major world currencies. The euro is weighted the most heavily in the index at 57.6%, followed by the Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc.
The trend is abundantly clear. In fact, the dollar hasn’t been this weak against the pound since last September (despite all the Brexit hoopla) … the Australian dollar since May 2015 … and the euro since January 2015.
The first obvious question is “Why?” And I think the answer is that expectations about relative global growth rates and future central bank policies are changing.
We all know the U.S. Fed is in the midst of a tightening cycle. It first raised short-term interest rates back in December 2015, and has now done so a total of four times (most recently in June).
During the early part of this cycle, the European Central Bank was adamant it wouldn’t follow in the Fed’s footsteps. In fact, the ECB actually ramped up its quantitative easing plans as the Fed took the first tentative steps toward tightening.
But foreign economic data began to improve several months ago. That’s particularly true in Europe. As a matter of fact, we recently learned that GDP in the Eurozone rose at an annualized rate of 2.3% in the second quarter. That’s the fastest since 2011!
So it’s growing more likely that the ECB will backtrack, dialing down its QE plans and/or starting to lay the groundwork for future rate hikes. We’re likely to hear and see more hawkish talk and behavior out of central banks in the U.K., Canada, and even Japan, too.
Politics may also be playing a role. The increasing chaos and frequent personnel changes in the Trump White House are probably causing some investors to pull back from the dollar and dollar-based investments. It doesn’t help that Trump’s growth-boosting measures, including large tax cuts and massive infrastructure spending programs, haven’t gotten past the planning stages.
Knowing what’s causing currencies to move is fine. But as an investor, what you really want to know is how to profit. One of the best ways is to buy foreign bonds, stocks, and funds, or U.S. companies with large foreign operations.
That’s because you benefit from currency translation effects. Each unit of profit earned in foreign currencies translates into more dollars as the dollar falls. Plus, stocks and bonds denominated in foreign currencies rise in dollar terms as the buck drops.
To help you identify stocks that are benefitting from a falling dollar, I combed through the vast database of information we have at Weiss Ratings. Specifically, I created a stock “screener” including companies domiciled in the 10 foreign countries with the most listings overall, and that are traded here on the major U.S. exchanges.
I eliminated any stocks with a Weiss Rating of Sell (D+ or lower) … a market capitalization of less than $50 million … or average daily trading volume of fewer than 50,000 shares. I also nixed any stocks that were down for the year.
Here is a list showing the top 10 stocks that made the cut. It’s sorted in descending order by Weiss Rating:
Data Date: 8/8/12017
Companies based in the U.K. and Canada dominated the list, but firms from China and Germany were also represented. They’re from a wide range of industries, including IT, health care, finance, transportation, and leisure. The insurance brokerage and risk management firm Aon plc (AON), Rated “A-” and information and media giant Thomson Reuters (TRI), Rated “A-” took spots #1 and #2.
If you want to generate more dollars from your investments, I suggest you consider these falling dollar plays. Or if you’re more comfortable with “field bets,” use ETFs and mutual funds that focus on foreign stocks. Just be sure that one way or another, you expand your portfolio’s horizons!
Mike Larson is senior analyst at Weiss Ratings where he has edited High Yield Investing and Safe Money Report.
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