Long term, the dollar’s trend is down.
Don’t be fooled by the rising U.S. dollar because the long-term trend is for a weakening greenback. The dollar gained recently after yields for 10-year U.S. Treasury notes rose, but Richard Kelly, head of global strategy at TD Securities in London, says in a research note that both have likely peaked and should slip from current levels. That’s good news for multinationals, whose products become cheaper in foreign markets when the dollar softens. Commodity producers should benefit because their assets often rise in price as the greenback falls. Analysts believe these eight stocks also will strengthen from a weaker dollar.
Google’s parent company Alphabet receives more than half its revenue overseas, says Scott Kessler, who is the director of CFRA’s equity research team and also covers software and internet firms. Europe alone accounted for more than a third of Alphabet’s revenue as Google has a bigger market share in some European countries than in the U.S. While European regulators have taken a more aggressive stance toward Google, Kessler thinks the concerns the market has about European oversight are overblown. “Google continues to deliver very strong growth and doesn’t seem to be valued accordingly,” says Kessler, who rates the stock a “strong buy.”
Apple (AAPL)
A weak dollar is a double positive for Apple: Roughly 60 percent of its revenue is foreign and supply chain contracts are denominated in U.S. dollars so that revenue rises more than the cost of goods, says CFRA analyst Angelo Zino. What’s more, products like the Apple Watch have been “absolutely phenomenal” for the company in 2018, Zino says. Other products like Air Pods, the wireless earphones, have a strong following, and there are high expectations for Air Power, the wireless charging pad, which is expected to roll out this summer. Zino recommends Apple as a “buy.”
Chevron Corp. (CVX)
Compared to its chief rival, Exxon Mobil Corp. (XOM), Chevron is more sensitive to oil prices because more of its production comes from the liquid petroleum side of the energy business, says Stewart Glickman, an energy equity analyst at CFRA. Like other commodities, oil does well when the dollar falls. Glickman recently upgraded Chevron to a “buy” after it pulled off some significant goals, such as passing major milestones on new construction, continuing to support its dividends and generating good production growth. “Their ability to execute [these goals] has been really good,” Glickman says, adding that, as a result, the firm is in a better position than Exxon.
EOG Resources (EOG)
Glickman calls EOG Resources a best-of-breed exploration and production energy company and rates it a “buy.” It’s the largest independent exploration and production company globally, specializing in onshore natural gas in North America. Access to several oil-rich shale regions including the Permian Basin, the largest reservoir of shale oil in the U.S., diversifies EOG’s energy production. If crude oil prices stay at $60 or above, the company’s oil production will grow to 20 percent from 16 percent. A weaker dollar could make that possible, as oil prices often rise accordingly. Glickman also considers EOG’s emphasis on returns over production growth a sound strategy.
Franco-Nevada Corp. (FNV)
Although gold generally benefits from a falling dollar, mining companies may not because theirs is a risky business. Instead, investors should consider royalty companies, which fund exploration and production for mining companies in exchange for a cut of the profits, says Adrian Day, principal at Adrian Day Asset Management. Franco-Nevada is his pick. “The royalty model is lower risk,” Day says, though investors still benefit from higher gold prices. Franco has $1.2 billion of cash and no debt. It receives royalties from 41 producing mines and has dibs on another 340 non-producing mines that will pay royalties when gold prices rise and the mines go into production.
HP (HPQ)
CFRA’s Zino also has a “buy” recommendation on HP, the printer and PC maker formerly known as Hewlett-Packard. Like Apple, HP gets much of its revenue — 60 percent — overseas and has a dollar-denominated supply chain, so profit margins should improve as costs fall, he says. Zino likes HP because the PC and printer business is stabilizing, which should increase free cash flow in the long term. Also, HP could add to its 3D printing line over the next few years. It’s a tiny part of the business, but Zino says, “it’s a high growth area for them, which is going to start [paying] some real rewards.”
Microsoft Corp. (MSFT)
Eric Ervin, president of Reality Shares exchange-traded funds, says Microsoft has great international exposure for its products since “just about everyone” uses a version of its Office products. Plus, Microsoft has few expenses developing its products. “It’s really like a revenue engine as they get paid in all of these other currencies that they can convert back into U.S. dollars,” he says. The company is also big into blockchain and has a “huge” web server business. As more companies and governments use blockchain, they will need a cloud computing service like Microsoft Azure to do it, he says.
Osisko Gold Royalties (OR)
Osisko is the fourth-largest mining royalty company and fairly new, Day says, having entered the business when it sold the Canadian Malartic mine a few years ago. He says the 5 percent royalty that Osisko still collects on Canadian Malartic is extremely high. Osisko also has a royalty on a Canadian mine called Eleonore, which is expected to have a 20-year life and is highly leveraged to gold, benefiting even more as gold prices rise. Most of Osisko’s assets are in Canada, a low-risk mining jurisdiction, and the firm has a good balance sheet, says Day. With exposure to about 20 different other royalty streams, Osisko is a higher-risk model than Franco-Nevada for a higher reward, he says.
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8 Stocks That Should Strengthen From a Weak Dollar originally appeared on usnews.com
