Before the economic crisis took hold, the U.S. dollar began a
steady downward drift as global investors started to realize that
economic growth would be more robust elsewhere in the world. The
dollar's slump was also due to never-ending trade deficits, which
had long been expected to weaken the
, and finally did so beginning in late 2004. During the next 30
months, the U.S. dollar, compared to the euro, fell from 0.86 euros
to 0.63 -- a -25% drop.
With concerns about the global economic crisis receding, the dollar
is back on a downward path. As I noted recently, the dollar "now
stands at all-time lows against the Australian dollar and the Swiss
franc, a 15-year low against the Japanese yen, and more recent lows
against the euro." [
What the Global Currency Wars Mean for Your
] That recent downward move should have an almost immediate impact:
export-related profits are bound to come in higher than forecasts
in the fourth quarter of 2010 and the first quarter of 2011 as
get repatriated back into dollars.
Yet it's the long-term impact that investors need to embrace. Not
only are foreign-earned profits likely to be pumped up by further
dollar weakness, but the competitive positioning of U.S. firms is
also bound to improve, setting the stage for rising
Of course, many exporters also have operations in foreign
countries, so their expenses will also rise. So if you're looking
to cash in on the potential export surge, then it pays to focus on
companies with a still-considerable manufacturing presence here in
the United States.
Here's a look at five industries and representative companies that
I will think will flourish from a weaker dollar...
1. Industrials -- Illinois Tool Works (
Of all of the industries that comprise U.S. exports, the industrial
sector is the largest by far, with more than $100 billion in
manufactured goods shipped abroad annually. Among the major
exporters, it's almost impossible to find companies that don't also
manufacture some of their production abroad, and Illinois Tool
Works is no exception. But this company has ample flexibility and
can easily migrate some of that foreign production back to the
U.S., as its domestic manufacturing base is under-utilized.
The weak dollar scenario could be a real boon to the company, which
faces serious local competition in the international marketplace.
Its 800 divisions have a chance to pick up market share, helping
sales rise from a projected $15.7 billion in 2010 toward the $20
billion mark in coming years.
2. Agriculture -- Smithfield Foods (
The U.S. has become an impressive exporter of commodities -- a
trend that will only be strengthened if the dollar continues to
slump further. Yet it's our livestock that could be the real trade
winner. Did you know that Japan is the largest market for imported
pork in the world? And did you know that China, which consumes 50%
of the world's pork, is at maximum production and may soon become a
pork importer? That means China will be ill-equipped to supply the
Japanese market, and we here in the U.S. stand to post rising pork
exports -- especially as the dollar weakens.
Smithfield Foods, which I profiled
in this piece
, is the world's largest producer of pork. Right now, Smithfield is
looking to restrain output to help boost prices. But as global
demand for pork exports rises, Smithfield won't have to worry about
constraining output much longer.
3. Mutual Funds -- Fidelity Export and Multinational Fund
This fund has returned just +0.8% on an annualized basis for the
past five years. That's right in line with the S&P 500. But a
weaker dollar changes everything for this fund. It helps pump up
earnings for the companies in its portfolio, and it helps them take
market share. This play may be especially timely, as a number of
its holdings are likely to speak about the benefits of a weaker
dollar in their upcoming conference calls.
The Fidelity Export Fund's top five holdings are:
Apple (Nasdaq: AAPL)
Johnson & Johnson (
Procter & Gamble (
4. Media -- Disney (
Despite the occasional cultural war, we remain the undisputed kings
of global entertainment. Many countries heavily subsidize local
film industries to help create domestic blockbusters, but it's the
U.S. blockbusters that often take home the local gold in terms of
box office receipts. Disney, with interests in theme parks, Pixar
movie studios, cruise ships and other forms of entertainment, is
truly a global brand. Disney, like other media firms, will be
hard-pressed to boost market share simply because the dollar is
cheaper, but those foreign-earned profits are likely to be worth
even more as the dollar slips further.
Before the global economic crisis hit, Disney was on its way to
become a profit powerhouse as
grew more than +30% in 2006 and 2007 and topped out at $2.28.
Profits subsequently slumped in the economic downturn, but should
return to pre-recession levels this year. It may not be long before
Disney resumes that upward profit surge: analysts think per share
profits can approach $3 by 2012 or 2013. Not bad for a $34 stock
with such strong global brand cachet.
5. Software -- Oracle (Nasdaq: ORCL)
I'm hesitant to include this stock after it has had a recent strong
run, but you can't ignore the appeal of this sector when talking
about the global trade picture. Oracle's software is not a
price-sensitive product. But the after-market support the company
sells in terms of service contracts sure is.
Oracle often needs to make major price concessions on these service
contracts to win business away from rival
, whose business is denominated in euros. Oracle's business is done
in dollars. In a world of cheaper dollars, Oracle can either cut
price in the local
and take market share, or maintain price and boost margins as the
dollar falls farther. It's a nice problem to have, and can be said
of many other tech powerhouse such as
Microsoft (Nasdaq: MSFT)
Action to Take -->
There are already compelling reasons to own these stocks, but a
falling dollar makes it all the more tempting to consider these
names. Not only that, but a busier export sector creates a virtuous
cycle, as support businesses receive more orders to help provide
goods and services to these large firms.
The Obama administration realizes the power of a weak dollar, which
is why we don't read much about the U.S.'s "strong dollar" approach
anymore. Keep an eye on the currency markets. If the dollar's
recent slide continues, you can expect to start hearing about these
export plays all over Wall Street.
-- David Sterman
David Sterman started his career in equity research at Smith
Barney, culminating in a position as Senior Analyst covering
European banks. David has also served as Director of Research at
Individual Investor and a Managing Editor at TheStreet.com. Read
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.