Analysts recommend these strong-dollar stocks to buy.
The U.S. dollar recently achieved parity with the euro for the first time in 20 years. Inflation may be driving down the purchasing power of the dollar for Americans, but the dollar has outperformed the euro and most other international currencies in 2022. In fact, the Invesco DB US Dollar Index Bullish Fund (ticker: UUP) is up 11.3% this year through July 21 in an extremely difficult market. A strong dollar is good news for U.S. stocks that generate limited international revenue. Here are seven stocks Bank of America analysts recommend that have the highest positive correlation to the U.S. dollar.
Darden Restaurants Inc. (DRI)
Darden Restaurants is the parent company of Olive Garden, LongHorn Steakhouse and several other full-service restaurant brands operating in the U.S. and Canada. Analyst Katherine Griffin says full-service restaurants are recovering business they lost during the pandemic. She says Darden is well-positioned to both take advantage of pricing power and grow traffic. Griffin projects 33.8% revenue growth and 71.3% earnings growth for Darden in 2022. In addition, Darden has the highest positive correlation to the U.S. dollar of any stock Bank of America covers. The firm has a “buy” rating and $145 price target for DRI stock, which closed at $121.69 on July 21.
Equity Residential (EQR)
Equity Residential is a real estate investment trust, or REIT, that owns and operates a diversified portfolio of U.S. apartment properties. Analyst Jeffrey Spector says REITs with strong balance sheets, including low leverage and high liquidity, perform best during periods of U.S. economic downturns. Spector projects forward net operating income of $1.8 billion for Equity Residential. Not only does the REIT have a high positive correlation to the U.S. dollar, it also has no exposure to the European market and pays a 3.4% dividend yield on a trailing-12-month basis. Bank of America has a “buy” rating and $88 price target for EQR stock, which closed at $72.68 on July 21.
Southwest Airlines Co. (LUV)
Southwest Airlines is the fourth-largest U.S. airline by revenue. Analyst Andrew Didora says airline revenue growth is accelerating heading into the second half of 2022. Southwest is one of his top airline stock picks in the current environment because of its strong balance sheet and high margins. Southwest also has a domestically focused business, limiting its exposure to weaker international travel trends and currencies. The latest U.S. airline bookings data suggests total system net sales are now 98% of pre-pandemic levels in 2019. Bank of America has a “buy” rating and $60 price target for LUV stock, which closed at $40.89 on July 21.
Kroger Co. (KR)
Kroger is the largest U.S. conventional grocery retailer. Analyst Robert Ohmes says Kroger is benefiting from its product variety, its high-margin private-label sales, and its pricing leverage in an inflationary environment. In addition, Ohmes says Kroger customers are taking advantage of its fuel rewards offerings more than ever as prices at the pump soar. He says customer visits are increasing and its customer base is growing, two trends that should help offset inflation-driven declines in the number of items purchased per customer. Bank of America has a “buy” rating and $75 price target for KR stock, which closed at $46.28 on July 21.
Quest Diagnostics Inc. (DGX)
Quest Diagnostics is a U.S. clinical diagnostic testing and services company with a national network of laboratories. Analyst Derik de Bruin says COVID-19 testing has been a prolonged tail wind for Quest, but revenue from the company’s core business was also up 6.3% in the first quarter. Margins have been pressured by Quest’s aggressive investments in direct-to-consumer initiatives and advanced diagnostic services, but de Bruin is bullish on the company’s longer-term margin outlook as those investments start to generate high-margin revenue starting in 2023. Bank of America has a “buy” rating and $163 price target for DGX stock, which closed at $134.63 on July 21.
Public Storage (PSA)
Public Storage is a REIT that is the largest owner of self-storage facilities in the U.S. After attending the recent Nareit conference, Spector says self-storage REITs are reporting better-than-expected operating trends, and management teams have little concern over supply risk heading into 2023. In the first quarter, Public Storage reported 29.4% growth in per-share funds from operations and 19.3% growth in same-store direct net operating income. Same-store gross margin, before indirect costs, depreciation and amortization, also increased by 3% to 78.8% in the quarter. Bank of America has a “buy” rating and $396 price target for PSA stock, which closed at $319.28 on July 21.
UDR Inc. (UDR)
UDR is a residential apartment REIT that owns more than 57,000 U.S. apartment units. After meeting with the company’s management in June, Spector said UDR reported some of the most positive demand trends within the residential REIT group. UDR is also coming off a strong first quarter and looking to continue that momentum when it reports second-quarter earnings in late July. In the first quarter, UDR reported per-share funds-from-operation growth of 69% and 97.3% occupancy. Growth in the southeastern region was particularly strong. Bank of America has a “buy” rating and $56 fair value estimate for UDR stock, which closed at $45.69 on July 21.
7 stocks that benefit from a strong dollar:
— Darden Restaurants Inc. (DRI)
— Equity Residential (EQR)
— Southwest Airlines Co. (LUV)
— Kroger Co. (KR)
— Quest Diagnostics Inc. (DGX)
— Public Storage (PSA)
— UDR Inc. (UDR)
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7 Stocks That Benefit From Strong Dollar-to-Euro Exchange Rates originally appeared on usnews.com
