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5 more ways to play a weak dollar
Last month, I spotted overseas five stocks that'll benefit from a weak dollar. Now, I've found five in the United States that'll see more business overseas thanks to the dollar's decline.
By Jim Jubak
So far, the dollar's fall is doing only half its job. And its not doing it especially well. Imports (the stuff we buy) remain stubbornly higher and exports (the stuff we sell) havent picked up tremendously.
But investors still can get a big bang out of the dollars decline if they concentrate on companies exporting to countries in the euro zone. The euro is bearing the brunt of the dollars fall, and the weak dollar gives U.S. companies a way to grab market share in Europe.
Despite the drop in the dollar against the euro, the yen, the Canadian dollar and other strong currencies, which should be lowering demand for imports by making them more expensive to U.S. consumers, the United States remains on a shopping spree. The value of all imports into United States fell by just 0.8% in September to a still shocking $149 billion.
This leaves our country on track for a current account deficit of $650 billion in 2004, the Organization for Economic Cooperation and Development (OECD) projects. A deficit that bit would add up to 5.7% of total U.S. gross domestic product, the highest ever.
Sticky imports
Imports are proving so stubbornly high because 1) much of what we buy is priced in Chinese yuan and other Asia currencies that are pegged to the dollar so they dont become more expensive with the dollars fall, and 2) companies in strong-currency countries are absorbing the costs of a falling dollar. A strong euro BMW 325, for example, carried a sticker price of $31,210 in 2004. The 2005 model will cost just $60 more, despite the tumble in the dollars buying power.
Exports, meanwhile, are picking up only gradually. They rose just 0.8% in September.
But the story is very different if you look at specific sectors. For example, industrial machinery exports are up 54% this year, according to the Commerce Department. The bulk of the growth, as youd expect, is coming in exports to Europe and in sectors where U.S. companies are winning business that used to go to German, French or Italian companies.
In my Nov. 10 appearance on CNBCs "Morning Call" I picked five stocks, Allied Irish Bank (AIB, news, msgs) , Bank of Montreal (BMO, news, msgs), Endesa (ELE, news, msgs), HSBC (HBC, news, msgs) and Companhia Vale do Rio Doce (RIO, news, msgs), to buy to directly profit from the dollar's decline.
I'm now picking five other stocks to buy to profit from the growth in U.S. exports to the strong currency countries in Europe (especially) and in Japan (to a lesser extent).
One big market
Wolverine World Wide (WWW, news, msgs) wants to become the worlds leading non-athletic shoe company, and growth in Europe is a key part of that plan. At $51 billion in annual sales, the shoe market in Western Europe is almost $10 billion larger than the U.S. market, but only 20% of Wolverines 2003 sales were in Europe. So far this year, the company has shown some success in increasing its presence there. For the year's first nine months, Wolverine's global sales grew by 12.9%, but revenue growth in the European market rose by 14.9%.
With $968 million in revenue over the last 12 months, the under-penetrated European market gives Wolverine plenty of room for growth. Our StockScouter rated the stock a 7 out of a possible 10 on Dec. 8.
Cutting grass
Toro (TTC, news, msgs) makes what would seem to be an American icon -- the power lawnmower. But the company does business through 118 foreign distributors in more than 90 countries. Disentangling the effects of a weak dollar on Toros business isnt easy, but it does show a net advantage to the company.
International sales, which make up about 20% of the companys revenue, climbed 10.7% in the year's first three quarters if you exclude currency effects and 16.7% if you include exchange gains from the weaker dollar. That has been more than enough to offset higher steel costs. So far this year, overseas revenue growth has pretty much tracked the companys overall revenue growth at 10.7% and 10.9%, respectively. Our StockScouter rated the stock a 7 on Dec. 8.
A rebound year
Black & Decker (BDK, news, msgs) operates in one of the worlds most competitive markets, where slight shifts in costs and prices make the difference between profits and losses. This is where a weak dollar comes in.
The company has been on a rebound this year, with the stock up 72% year-to-date thanks to a successful drive to cut costs and increase productivity. But the stock has been in a holding pattern since early November on fears that global competition in the power tool, hardware and home improvement market would cut profit margins in 2005.
The falling dollar gives Black & Decker room to grow sales and some pricing shelter that should keep profit margins high enough so that the company will be able to beat Wall Streets forecast of 13% earnings per share growth in 2005. Black & Decker does about 25% of its sales in Europe. Our StockScouter rated the shares an 8 on Dec. 8.
And, as always, I have two more exclusive picks for CNBC.com on MSN readers.
Looking for market share
PACCAR (PCAR, news, msgs) isnt looking for industry-wide European sales of heavy-duty trucks to grow faster than sales in North America in 2005 (19% to 4% industry-wide unit growth, respectively), but it is gunning to pick up a bigger chunk of sales in both those markets. Certainly the weak dollar will help since two of the companys three biggest competitors are units of DaimlerChrysler (DCX, news, msgs) and Volvo (VOLVY, news, msgs), euro Zone companies.
To get a sense of the size of the dollar edge that PACCAR enjoys, PACCAR's revenues were $311 million higher because of currency exchange rates in the year's first nine months. Our StockScouter rated these shares an 8 on Dec. 8.
Hot markets
Rockwell Automation (ROK, news, msgs) grew sales by 8% in the year's first nine months. Exchanges from strong to weak currencies accounted for about half of that growth.
Management wants to grow revenue by 6% to 8% in 2005. With the weak dollar helping sales in the companys hottest markets for its industrial automation and power control systems in Korea, India and Latin America, thats likely. Management also wants to get operating margins up to 15% in 2005, and again, thats likely. The dollar could even push revenue growth slightly above the companys targets if global capital spending stays modestly healthy in 2005. Our StockScouter rated the shares a 7 on Dec. 8.
Editor's Note: A new Jubaks Journal is posted every Tuesday and Friday.
E-mail Jim Jubak at jjmail@microsoft.com.
At the time of publication, Jim Jubak owned or controlled shares in none of the equities mentioned in this column. He does not own short positions in any stock mentioned in this column.
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