Greenback Rally? Here are the Stocks That Stand to Benefit

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(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA)

The US dollar has taken a hit against the euro, the yen and the price of gold, so is it time to dump the dollar? At first glance, it may seem a prudent decision, but it’s worth another look.

Despite its decline, the dollar will probably be the world’s currency for a few more decades if only because no serious contender has emerged, argues Bernard Haven of Market Watch.

“As Europeans embark on their own financial crisis, the euro will face the same headwinds as the dollar with the added complication of multi-national European politics. China’s resistance to a free market for the yuan limits its appeal as a universal currency.  And while gold has risen in price, it remains a relatively small market”

What’s more, most of the damage may have already been done. Institutional investors have been so quick to pull out of the US dollar market that they’ve practically saturated other markets, from currencies to commodities.

“Fearing a falling dollar, institutional investors have moved capital into every other instrument imaginable, from the Brazilian Real to titanium to African farmland.”

As a result, the dollar is basically “on sale” in terms of purchasing power.

A depressed dollar can also offer valuable investing opportunities to the contrarian investor because buying US equities is relatively discounted to those in foreign markets. History has shown that currencies tend to gravitate towards their purchasing power over time, which would indicate significant upside for U.S. dollar denominated assets, reports Haven.

Investing Ideas

So, which companies stand to benefit from U.S. dollar strength?

For ideas, we went back in time, and collected price data on thousands of stocks. We identified the companies that performed best during times of U.S. dollar strength.

The time intervals we used for our calculation (i.e. time intervals when the greenback gained strength):

04/17/2008 – 03/04/2009
11/27/2009 – 06/04/2010
04/29/2011 – 09/29/2011

All of the names mentioned below outperformed the market during these three time periods. Of course, past performance is no guarantee of future results, so only use this list as a starting point for your own analysis.

History suggests these companies do well in times of a rising U.S. dollar. Do you think history will repeat itself?

Analyze These Ideas (Tools Will Open In A New Window)

1. Access a thorough description of all companies mentioned
2. Compare analyst ratings for all stocks mentioned below
3. Visualize annual returns for all stocks mentioned

List sorted by the average alpha vs. the S&P 500 index.

1. Peet's Coffee & Tea Inc. (PEET): Operates as a specialty coffee roaster and marketer of fresh roasted whole bean coffee and tea in the United States. Between 04/17/2008 and 03/04/2009: Price changed from $23.1 to $20.88, a price return of -9.61% (alpha of 38.19%). Between 11/27/2009 to 06/04/2010: Price changed from $32.93 to $38.95, a price return of 18.28% (alpha of 20.72%). Between 04/29/2011 and 09/29/2011: Price changed from $46.48 to $56.39, a price return of 21.32% (alpha of 36.22%). [Average Alpha: 31.71%]

2. Luminex Corporation (LMNX): Develops, manufactures, and sells proprietary biological testing technologies and products for the life sciences and diagnostic industries in the United States. Between 04/17/2008 and 03/04/2009: Price changed from $18.05 to $15.69, a price return of -13.07% (alpha of 34.72%). Between 11/27/2009 to 06/04/2010: Price changed from $13.71 to $17.21, a price return of 25.53% (alpha of 27.97%). Between 04/29/2011 and 09/29/2011: Price changed from $19.39 to $22.64, a price return of 16.76% (alpha of 31.66%). [Average Alpha: 31.45%]

3. Tractor Supply Company (TSCO): Operates retail farm and ranch stores in the United States. Between 04/17/2008 and 03/04/2009: Price changed from $18.15 to $14.75, a price return of -18.73% (alpha of 29.06%). Between 11/27/2009 to 06/04/2010: Price changed from $23.31 to $31.83, a price return of 36.55% (alpha of 38.99%). Between 04/29/2011 and 09/29/2011: Price changed from $61.62 to $67.13, a price return of 8.94% (alpha of 23.84%). [Average Alpha: 30.63%]

4. Ross Stores Inc. (ROST): Operates off-price retail apparel and home accessories stores under the Ross Dress for Less and dd's DISCOUNTS brand names in the United States. Between 04/17/2008 and 03/04/2009: Price changed from $31.42 to $29.49, a price return of -6.14% (alpha of 41.65%). Between 11/27/2009 to 06/04/2010: Price changed from $43.27 to $53.85, a price return of 24.45% (alpha of 26.89%). Between 04/29/2011 and 09/29/2011: Price changed from $73.28 to $78.39, a price return of 6.97% (alpha of 21.88%). [Average Alpha: 30.14%]

5. Casey's General Stores Inc. (CASY): Operates convenience stores under the names of 'Casey's General Store', 'HandiMart' and 'Just Diesel' in the Midwestern states. Between 04/17/2008 and 03/04/2009: Price changed from $20.59 to $18.27, a price return of -11.27% (alpha of 36.53%). Between 11/27/2009 to 06/04/2010: Price changed from $29.89 to $35, a price return of 17.1% (alpha of 19.53%). Between 04/29/2011 and 09/29/2011: Price changed from $38.78 to $44.79, a price return of 15.5% (alpha of 30.4%). [Average Alpha: 28.82%]

6. Alkermes, Inc. (ALKS): Provides extended-release injectable and oral products for the treatment of prevalent and chronic diseases, such as central nervous system disorders, reward disorders, addiction, diabetes, and autoimmune disorders. Between 04/17/2008 and 03/04/2009: Price changed from $11.13 to $8.97, a price return of -19.41% (alpha of 28.39%). Between 11/27/2009 to 06/04/2010: Price changed from $8.63 to $11.56, a price return of 33.95% (alpha of 36.39%). Between 04/29/2011 and 09/29/2011: Price changed from $14.42 to $15.37, a price return of 6.59% (alpha of 21.49%). [Average Alpha: 28.76%]

7. Greene County Bancorp, Inc. (GCBC): Operates as the holding company for The Bank of Greene County that provides various banking products and services in the Greene County, Columbia County, and southern Albany County, New York. Between 04/17/2008 and 03/04/2009: Price changed from $11.06 to $9.53, a price return of -13.83% (alpha of 33.96%). Between 11/27/2009 to 06/04/2010: Price changed from $13.75 to $16.85, a price return of 22.55% (alpha of 24.98%). Between 04/29/2011 and 09/29/2011: Price changed from $17.66 to $18.82, a price return of 6.57% (alpha of 21.47%). [Average Alpha: 26.81%]

8. 1st Source Corporation (SRCE): Operates as the holding company for 1st Source Bank that offers commercial and consumer banking services to individuals and businesses in Indiana and Michigan. Between 04/17/2008 and 03/04/2009: Price changed from $18.4 to $15.88, a price return of -13.7% (alpha of 34.1%). Between 11/27/2009 to 06/04/2010: Price changed from $13.13 to $16.24, a price return of 23.69% (alpha of 26.12%). Between 04/29/2011 and 09/29/2011: Price changed from $20.76 to $21.38, a price return of 2.99% (alpha of 17.89%). [Average Alpha: 26.04%]

9. PetSmart, Inc. (PETM): Operates as a specialty retailer of products, services, and solutions for pets in North America. Between 04/17/2008 and 03/04/2009: Price changed from $20.92 to $17.85, a price return of -14.67% (alpha of 33.12%). Between 11/27/2009 to 06/04/2010: Price changed from $25.33 to $30.55, a price return of 20.61% (alpha of 23.05%). Between 04/29/2011 and 09/29/2011: Price changed from $41.92 to $43.45, a price return of 3.65% (alpha of 18.55%). [Average Alpha: 24.91%]

10. Richmont Mines Inc. (RIC): Engages in the acquisition, exploration, development, and operation of mining properties, principally gold in northeast Canada. Between 04/17/2008 and 03/04/2009: Price changed from $3.8 to $2.55, a price return of -32.89% (alpha of 14.9%). Between 11/27/2009 to 06/04/2010: Price changed from $3.43 to $4.56, a price return of 32.94% (alpha of 35.38%). Between 04/29/2011 and 09/29/2011: Price changed from $9.73 to $10.6, a price return of 8.94% (alpha of 23.84%). [Average Alpha: 24.71%] 



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets


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