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These stocks could benefit from a weaker dollar, portfolio manager says

The almighty dollar is looking less so this year.

The U.S. dollar has fallen 10% since March highs and holds close to a two-year low.

This is a boon for sectors with high exposure to international markets because the conversion works in their favor when they bring profits stateside. Materials, technology and consumer staples have the highest exposure to international markets at more than 40% of total revenue.

JC O’Hara, chief market technician at MKM Partners, says that dynamic is already showing up in the stocks’ performances.

“When you get down to the individual stocks, you want to find those companies who derive a good portion of revenue from overseas,” O’Hara told CNBC’s “Trading Nation” on Wednesday. “Off the March low, we [saw] a basket of S&P 500 stocks with above average revenue from international markets outperform. That basket returned 61%. Now that compares to the S&P, which over that same time period was up 53%.”

Stocks with a small portion of revenue derived from outside the U.S. rose by 40%, says O’Hara.

“The moral of the story is, you want to go hunting in a weak dollar environment for those companies that have good foreign earnings,” he added.

Chad Morganlander, portfolio manager at Washington Crossing Advisors, is looking for opportunity in the industrials space. The XLI industrials ETF generates 33% of total sales from outside the U.S. One of its largest components, Boeing, derives as much as 44% of revenue from overseas.  

“Because of the weak dollar environment, these industrials have, from a valuation perspective, been trading quite cheaply. And as you start to go past 2021 into 2022, we believe that the industrials valuations will go up considerably,” Morganlander said during the same “Trading Nation” segment.

Morganlander, in particular, sees potential in Honeywell, General Dynamics, Raytheon Technologies and 3M.

“We believe for investors that have a two- to three-year time horizon, you can do quite well and also benefit from this weak dollar environment,” he said.

Disclosure: Washington Crossing holds HON, GD, RTX and 3M.


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