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Looking for Opportunities Created by the Weak Dollar

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Last week, I wrote here about the collapse of the dollar and what it may mean for investors. I focused there on the big picture of why the dollar is lower, the debasement of the currency that comes with government debt that is rapidly approaching $27 trillion and a massive 6-month, 20% increase in M3 money supply. That picture is not pretty. In fact, it is downright ugly.

Borrowing and printing money on such a massive scale after 10 years of prosperity, and in the process devaluing the currency that is the basis of the global financial system, has the potential to be a disaster at some point in the future. I suppose it could happen that some responsible politicians will come along in time to avert catastrophe, but after a decade of fiscal mismanagement by both major parties, I’m not holding my breath. Far better to assume that the irresponsibility will continue apace and look for ways to play that unfortunate fact.

Luckily, it’s not all doom and gloom! As long as a global meltdown is avoided, there are advantages to a lower dollar for some parts of the economy. Exporters benefit, for example as the lower dollar makes their products more competitive in the global market. However, it isn’t as simple for investors as looking at what percentage of a company’s revenue comes from overseas and then buying stock in those with the highest foreign sales.

If you do that, there are a few clear “winners.” Chip manufacturers are always near the top of that list, but in many cases, the products are not just sold overseas, they are made there. They are not really “exporters” at all. They do repatriate more dollars per unit of foreign currency when the dollar is weak, but their costs are in foreign currencies which offsets the benefits and removes the competitive pricing edge.

Other sectors that will pop to the top in a search for overseas revenue include energy and financials. Those sectors, however, are both so heavily dependent on factors other than currency fluctuations that they really don’t fit the bill. What you are looking for to potentially benefit from the situation are U.S. companies that primarily make things here, then sell them elsewhere.

The classic example would be something like Boeing (BA), where well over half of the company’s revenue is derived from foreign sales.

BA chart

Obviously, Boeing too has its own problems right now. The air travel industry will probably not recover in a hurry, and they have had some very well-documented issues with some new plane models. However, at some point, people will fly again, and the hiatus has at least given them time to sort out things like the 737-Max issues. Meanwhile, the price of Boeing aircraft relative to those of overseas rivals is falling which gives them an edge. That price advantage will apply to their defense division too, which is no affected by the decline in air travel.

Another company to consider would be Caterpillar (CAT). They too derive more than 50% of their revenue from overseas and will benefit from a lower dollar.

Given the risk of another downturn, the big, solid nature of both of those businesses is a plus, but if you are prepared to take on a little more risk with the potential for more reward, you may want to take a look at GE (GE).

GE chart

The global collapse could not have come at a worse time for them given their struggles over the last few years. Pre-crisis though, the recovery did look to be underway in the capable hands of new CEO Larry Culp. With his contract recently extended for big bucks, that progress can resume as things normalize, and a lower dollar is a huge help to a company where foreign sales account for over 60%.

In the history of the world to this point, piling on debt and creating massive amounts of money has rarely if ever worked out well for any country. In the long-term, it probably won’t for America either. However, the short-term impact of that kind of fiscal irresponsibility, a weaker dollar, does result in some opportunities for investors. It makes sense to take those opportunities by buying stock in manufacturing companies with big overseas exposure now, while there is still money to be made.

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

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Martin Tillier

Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.

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