We rarely worry about whether the dollar is strong or weak relative to other foreign currencies unless we have plans to travel abroad and need euros, yen, or pesos (although we’re not doing much of that lately). Even so, moves in the dollar can affect your port folio in surprising ways. After a decade of nearly uninterrupted gains, the dollar sank precipitously all summer against a basket of foreign currencies. The greenback stabilized in September, however. Overall, since the start of the year, the dollar is lower by only 3%.But many strategists expect the U.S. currency to fall into a more persistent decline over the mediumtolong term, thanks in part to low-interest rates that the Federal Reserve has signaled will stay low for at least three years. “Mounting budget deficits, an expanded Federal Reserve balance sheet and an increased money supply” are weighing on the dollar, too, says Chao Ma, a global strategist at Wells Fargo Investment Institute. “We expect the U.S. dollar to stay in a structural bear market.” A weakening dollar can be good for certain investments. The U.S. companies that generate a significant chunk of revenues abroad will get a boost from the weaker dollar as money made overseas is converted into greenbacks. When the buck is weaker relative to the euro, for example, the profits that sporting goods giant Nike make in Europe will translate into more dollars when the firm repatriate those earnings. U.S. firms that export products overseas gain from a weaker dollar, too, because their goods become relatively less expensive for customers overseas.
Other kinds of investments can profit as well. U.S. investors in foreign stock funds benefit because when a foreign stock rises in price or pays a dividend in its local currency, that investment gain gets translated into dollars. Consider the performance of the MSCI EAFE index during the recent dollar decline. Over the nearly three-month period this summer when the dollar was weakening most, the index, which tracks stocks in foreign developed countries, gained 5.8% priced in local currencies. Converted into U.S. dollars, the index gained 10.9%.
And then there are commodities, whose prices tend to move inversely to the dollar. Because many are priced in dollars, a weak greenback typically means higher relative commodity prices. A lower dollar also fuels demand overseas, says Katie Nixon, chief investment officer at Northern Trust Asset Management. “Foreign buyers purchase U.S. commodities such as corn, soybeans, wheat, and oil with dollars. When the value of the dollar drops, they have more buying power.”
On the following pages, we home in on investments we think will benefit best from a lower dollar. Bear in mind that these are not meant to be wholesale changes you make to your portfolio. Rather, they are small, tactical bets to consider given the outlook for a weaker buck. Returns and data are through October 9.
U.S. companies that have substantial global operations will get a boost from the currency exchange when the dollar is weaker. Sales from foreign countries made up 43% of revenues for companies in the S&P 500 index in 2018, according to the latest data available from S&P Global. The following firms earn a high percentage of their revenues abroad, and they boast strong balance sheets and solid growth prospects, too.
ABBOTT LABORATORIES (SYMBOLABT, $110). Abbott pulls in 64% of sales from overseas. For years now, this maker of medical devices, generic drugs and nutritional drinks has focused on building a presence in emerging markets, where sales are growing fast.
The company’s acquisitions of Alere and St. Jude Medical in 2017 were key to beefing up its global business. Alere gave Abbott a top spot in point-of-care diagnostic tests (the ones administered in your doctor’s office, such as the test for the flu). And with St. Jude Medical, Abbott now dominates the worldwide cardiovascular device market. The purchases helped to drive the company’s overall growth in revenues in recent years, according to Abbott, particularly in emerging markets, which represent 40% of total sales.
Of course, the firm has other pluses. Its continuous glucose monitoring system, Freestyle Libre, is a top choice among diabetes patients—instead of finger sticks, a sensor worn on the body tracks glucose levels constantly. Sales of Freestyle Libre increased by 40% in 2019 from the year before; more than 2 million patients worldwide use the device.
Based on analysts’ earnings expectations over the next four quarters, the stock currently trades at a price-earnings multiple of 27—just a little higher than the average multiple of 28 in relation to expected earnings at which the stock has traded over the past three years. The firm’s rapid-result COVID diagnostic test has propelled the shares higher this year. Even so, Credit Suisse analysts Matt Miksic and Vik Chopra expect significant share-price gains over the next 12 months.
ACTIVISION BLIZZARD (ATVI, $78). Just over half of annual revenues at Activision Blizzard come from abroad. In the future, overseas sales may make up even more of total revenues. For starters, the growing shift of gaming to mobile devices (from consoles and computers) has expanded the potential market across the globe, and Activision hopes to pounce on it.
In fact, it already has. In late 2019, Activision launched a mobile-device version of Call of Duty, its hugely successful war game. Since then, the game has tripled its reach, according to the company, topping the charts for installments in more than 150 countries.
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