In this piece, we will take a look at the ten best stocks to buy for a weak U.S. dollar. If you want to skip our background of why the dollar has been on the rampage this year, and take a look at the top stocks in today’s list, head on over to 5 Best Stocks To Buy For A Weak US Dollar.
The hottest topic right now in finance is the U.S. dollar. The dollar is the world’s reserve currency, and it is used by most of the emerging economies central banks as their currency. A key reason why the ‘greenback’ reigns supreme is the oil and economic crisis of the 1970s that saw the U.S. dollar as the only currency available for oil payments and a safe haven asset. As the Bretton Woods financial system that had pegged global currencies to gold ended, the U.S., under President Richard Nixon and Secretary of State Henry Kissinger, struck a deal with Saudi Arabia that would allow a continuing demand for the dollar in global markets and ensure that the value remained stable. This agreement led to the Saudis agreeing to sell and price oil only in the dollar, and in response, the U.S. agreed to provide military security to Saudi oilfields.
From then to the present day, the dollar has reigned supreme and its fortunes are also dependent on oil as a stronger dollar results in lower oil prices due to lower demand from countries that use foreign exchange to buy the fuel. Additionally, a stronger dollar also helps importers that price their goods with the currency, since they can buy more goods. Conversely, exporters benefit when the dollar is weak since it allows them to sell more products overseas for the same dollar amount. As an example, an exporter that sells a good priced at $1 will see more sales if the local currency is stronger as it will bring in more revenue in the local currency for the same dollar unit.
The strong dollar has hit American companies hard this year, at a time when they are also seeing sales evaporate at home due to inflation. According to Goldman Sachs, one third, or 29% of firms listed on the Standard and Poor’s 500 index, get their sales from overseas. Some, such as the chip giant QUALCOMM Incorporated (NASDAQ:QCOM), end up bringing in as much as 96% of their sales from abroad.
However, the dollar might not reign supreme for long. The latest data in the U.S. point out that private sector wage growth dropped to 1.2% in the third quarter from 1.6% in the second quarter. Combined with inflation figures also being lower than economist estimates, there are whispers that the Federal Reserve might stop raising interest rates. Should this happen, and the U.S. economy slows down, the dollar will lose value and as a result help a host of different firms.
In this piece, we will take a look at some of the companies that can benefit from a decline in the greenback value and the top picks are The Coca-Cola Company (NYSE:KO), Apple Inc. (NASDAQ:AAPL), and Alphabet Inc. (NASDAQ:GOOGL).
Photo by Vitaly Taranov on Unsplash
Our Methodology
We took a broad look at which firms earn the bulk of their revenue from exports and then narrowed the list down based on their product strength, financial performance, and market factors. Because a major chunk of revenue of these firms comes from outside of the US, a weak dollar is net positive for them.
10 Best Stocks To Buy For A Weak US Dollar
10. International Business Machines Corporation (NYSE:IBM)
Number of Hedge Fund Holders: 40
International Business Machines Corporation (NYSE:IBM) is an American technology company that offers hardware infrastructure and cloud computing services to other firms. It is headquartered in Armonk, New York.
International Business Machines Corporation (NYSE:IBM)’s third quarter results revealed that out of the $14 billion that the firm had earned in revenue, $6.7 billion came from Europe, the Middle East, Africa, and Asia. In a quarter hit with inflation, it grew its revenue by 6% and aims to further grow it by 95% annually in the current quarter. Additionally, and perhaps most importantly, International Business Machines Corporation (NYSE:IBM) is one of the few technology companies whose shares are up by 1.8% year to date, with others having bled close to half of their value.
International Business Machines Corporation (NYSE:IBM) also pays a $1.65 dividend for a 4.76% yield. Insider Monkey’s Q2 2022 survey of 895 hedge funds outlined that 40 had held a stake in the company.
International Business Machines Corporation (NYSE:IBM)’s largest investor is Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital which owns 2.6 million shares that are worth $372 million.
International Business Machines Corporation (NYSE:IBM) joins Apple Inc. (NASDAQ:AAPL), The Coca-Cola Company (NYSE:KO), and Alphabet Inc. (NASDAQ:GOOGL) in our list of firms that will benefit from a weaker U.S. dollar.
9. McDonald’s Corporation (NYSE:MCD)
Number of Hedge Fund Holders: 50
McDonald’s Corporation (NYSE:MCD) is the world’s most famous fast food chain and it operates its own restaurants and licenses its brand to franchises as well. The company’s diverse global presence has also seen it cater its menu to local tastes.
As McDonald’s Corporation (NYSE:MCD)’s second quarter ended, the firm had brought in close to 60% of its $11 billion in revenue in the period from overseas markets. Additionally, McDonald’s Corporation (NYSE:MCD)’s expenses in foreign territories are also in the U.S. dollar, so it has to pay more local currency units to operate its facilities if the dollar is stronger.
McDonald’s Corporation (NYSE:MCD) pays a $1.52 dividend for a 2.21% yield and its shares are up by 2.2% year to date. By the end of this year’s second quarter, 50 out of the 895 hedge funds polled by Insider Monkey had held a stake in the company.
McDonald’s Corporation (NYSE:MCD)’s largest investor is Ray Dalio’s Bridgewater Associates which owns two million shares that are worth $511 million.
8. The Boeing Company (NYSE:BA)
Number of Hedge Fund Holders: 51
The Boeing Company (NYSE:BA) is the world’s largest aerospace company that has its claws in several different markets. These include passenger airplanes, fighter jets, and even spaceships for NASA’s International Space Station (ISS) and lunar missions.
The Boeing Company (NYSE:BA) reported in October 2022 that it had earned $16 billion in revenue, out of which a little over half was from non-U.S. customers. The quarter was an important one for the company as the company generated positive free cash flow for the first time in more than two years after it embarked on a turnaround effort. The Boeing Company (NYSE:BA) generated $2.9 billion in free cash flow during the quarter.
Insider Monkey’s June quarter 2022 survey of 895 hedge funds outlined that 51 had bought a stake in The Boeing Company (NYSE:BA).
The Boeing Company (NYSE:BA)’s largest investor is Andreas Halvorsen’s Viking Global which owns 1.3 million shares that are worth $190 million.
Meridian Funds mentioned the company in its Q2 2022 investor letter. Here is what the fund said:
“We similarly remained invested in largely out-of-favor The Boeing Companrseasy (NYSE:BA), a global leader in developing and producing commercial jet aircraft. Due to some self-inflicted wounds and a bit of bad luck, as well as dramatic declines in air travel early in the pandemic, investor sentiment for this company has simply been awful. As part of our contrarian thinking, however, we view the business as critical to global transportation needs and see multiple catalysts to improve sentiment. In addition to the current surge in air travel worldwide, ramped up production of the 737 MAX aircraft and the pending restart of 787 Dreamliner deliveries should help turn broader sentiment. Additionally, we anticipate a meaningful inflection in cash flow as Boeing starts delivering aircraft currently in storage as well as the eventual expansion of its production in both core platforms.”
7. Newmont Corporation (NYSE:NEM)
Number of Hedge Fund Holders: 56
Newmont Corporation (NYSE:NEM) is an American company that explores and produces gold, silver, copper, zinc, and other metals. The firm is headquartered in Denver, Colorado.
Newmont Corporation (NYSE:NEM) is the largest exporter on our list when it comes to the percentage of the revenue derived from overseas sales. As an illustrative example, by the end of its fiscal year 2021 in December, the company had sold $12 billion worth of metals, out of which only $52 million worth of metals from this were sold in the United States. Its biggest customer was the United Kingdom, as $8 billion of the sales were concentrated in the country.
Newmont Corporation (NYSE:NEM) pays a 55 cent dividend for a 5.13% yield and Insider Monkey’s Q2 2022 survey of 895 hedge funds outlined that 56 had held a stake in the firm.
Newmont Corporation (NYSE:NEM)’s largest investor is Robert Richards’ Heathbridge Capital Management which owns 517,380 shares that are worth $21 million.
First Eagle Investments mentioned the firm in a recent investor letter. Here is what the fund said:
“Shares of Colorado-based Newmont, the largest gold miner in the world, experienced weakness in the quarter as falling gold bullion prices and cost inflation hurt miners in general. More idiosyncratically, the company reported slightly disappointing earnings and production results for its most recent quarter due to pandemic-related disruptions, ongoing supply-chain constraints, and labor shortages.
It also warned that operating costs for 2022 were likely to come in at the upper end of previous guidance. We remain constructive on the stock, which offers steady production anchored in good jurisdictions, a good pipeline of organic projects, a strong balance sheet, and proven management.”
6. Caterpillar Inc. (NYSE:CAT)
Number of Hedge Fund Holders: 60
Caterpillar Inc. (NYSE:CAT) is a heavy equipment and machinery company that sells products for the resource extraction, construction, and energy industries. The company also provides financial services to its customers and it is headquartered in Deerfield, Illinois, the United States.
As part of its second quarter of 2022 earnings report, Caterpillar Inc. (NYSE:CAT) revealed that it had brought in $14.3 billion in revenue. Out of this, $7.2 billion were from sales made in Latin America, EAME, and the Asia Pacific, with EAME accounting for the highest sales. Caterpillar Inc. (NYSE:CAT)’s third quarter earnings revealed that the firm generated $15 billion in revenue which marked a stunning 21% growth even as the U.S. and other countries were grappling with inflation and a looming macroeconomic slowdown. Currency headwinds also resulted in a $465 million hit to the revenue.
Caterpillar Inc. (NYSE:CAT) pays a $1.2 dividend for a 2.19% yield and its shares are up by 5.96% year to date. Insider Monkey scanned 895 hedge fund portfolios for their second quarter of 2022 investments to discover that 60 had bought the company’s shares.
Out of these, Ken Fisher’s Fisher Asset Management is Caterpillar Inc. (NYSE:CAT)’s largest investor. It owns 7.5 million shares that are worth $1.3 billion.
Along with The Coca-Cola Company (NYSE:KO), Apple Inc. (NASDAQ:AAPL), and Alphabet Inc. (NASDAQ:GOOGL), Caterpillar Inc. (NYSE:CAT) is a strong stock for a weak dollar.
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Disclosure: None. 10 Best Stocks To Buy For A Weak US Dollar is originally published on Insider Monkey.