Things look very bleak for the dollar given the damage to the U.S. economy from the world’s worst coronavirus outbreak and our national debt reaching new highs after Donald Trump’s tax cuts and coasting spending over the past four years.
In fact, October marked the first time since February 2013 that the euro has been used more frequently than the dollar as the currency of choice for global payments, according to the Society for Worldwide Interbank Financial Telecommunications. And recently, Goldman Sachs warned the dollar could drop as much as 15% in value over the next two years.
Of course, the currency of the Americas is no stranger to the rise and fall of its influence, and we are simply in a period of weakness for the dollar. There is therefore no reason to worry, everyone is doomed to trade gold or canned goods instead of the greenback.
However, investors looking to outperform in 2021 may wish to position their portfolios now to capitalize on this currency momentum because contrary to what some may think, a declining dollar relative to its international peers may in fact yield a boost to some multinational stocks based in the United States. This is because when sales are made abroad in comparatively stronger currencies, it can lead to a nice increase in profitability simply by virtue of exchange rates.
The DXY index of the US dollar,
a measure of the US currency against a basket of six big rivals, is down more than 10% from its 2020 highs and dangerously close to a new 52-week low. Here are five low dollar games that could end if the dollar continues to fall in 2021.
The semiconductor giant Broadcom AVGO,
has a lot to gain right now, as evidenced by the impressive rise in stocks of over 20% so far in 2020.
For starters, news this summer that main competitor Intel INTC,
considering an exit from chipmaking naturally raised foundries that manufacture semiconductors like Broadcom.
And with a company focused on communications devices, including WiFi and Bluetooth technologies, Broadcom is playing the mass adoption of work from home as well as 5G deployments in the telecommunications industry.
The future of Broadcom is just as bright. This is because based on its 2019 financial data, the national net income was fair $ 4.2 billion against $ 8.1 billion in China and a total of more than $ 17.3 billion in total. Broadcom chips are sent to other hardware and electronics manufacturers, and typically those companies are located in regions like Asia where operations are cheaper than in the United States.
Add in revenue growth forecasts of nearly 10% next year, and the stage could be set for a good pop next year if a weakened dollar helps boost its bottom line.
Certainly, Coca-Cola KO,
struggled this year. It remains down more than 10% from its early 2020 highs even as other consumer staples stocks have taken off. This is largely because of its restaurant-dependent business providing non-alcoholic drinks to restaurants and the coronavirus forcing people to eat at home or take their orders, the demand for fountain drinks is no longer. what she was.
But Coca seems to be turning a corner. Shares beat expectations after results in October, just in time to also capitalize on optimism that vaccines could help speed up restaurant reopens in the coming months. In addition, he took advantage of the lull in business to focus on the longer term headwinds created by changing consumer tastes, announcing that he will stop selling Odwalla juices and Diet Tab sodas in the market. part of an ongoing restriction of its product portfolio.
This could mean that now is the time to drink coca broth. Consider that in 2019, less than a third
this $ 220 billion basic monster’s net revenues were generated by its North American operations. A weak dollar could increase international profitability at the perfect time.
It’s also worth noting that a generous dividend north of 3%, coupled with over 50 consecutive years of dividend increases, makes Coca-Cola a stock worth patiently owning even though things can. remain a bit unstable over the next few months.
While a number of healthcare stocks related to the coronavirus vaccine have gathered in recent times, Big Pharma mainstay Merck MRK,
hasn’t really been anywhere since its initial rebound from market lows in March. In fact, it’s actually a hair’s breadth away from where it was traded in early April. As the old saying goes, investors love to buy the rumor and sell the news, so now that those gains have been made, it’s time to look to the next big market trend.
Merck could be at the center of one of these opportunities. It is enjoying great success with its Keytrudacancer treatment, which some analysts say will become the world’s best-selling drug by 2023. And investors too distracted by the news of the coronavirus may have missed that Merck doubled its dominance in the oncology market with the $ 2.75 billion acquisition of biotech start-up VelosBio in November.
The pandemic has certainly disrupted the economy, the stock market and our lives. But in 2021 and beyond, Merck will be a key player in the fight against cancer, a disease was the number one cause of death globally and the second leading cause of death in the Americas with more than 500,000 cancer deaths in 2018 and a death rate that has increased each year for the previous 20 years, according to CDC data.
Over half of Mercks sales come from companies outside of the United States. The tailwind it could take advantage of next year therefore means that now is the time to consider a position in this drugmaker.
Mondelez Internaitonal MDLZ,
was derived from packaged food giant Kraft in 2012 precisely because that parent company focused solely on the U.S. grocery market and Mondelez had a very different and internationally focused profile. Concrete example: North America only accounted for about $ 7 billion in total revenue for fiscal 2019 of just under $ 26 billion.
This is a good situation if the dollar falls over the next year or two, as the currency’s favorable winds will come amid forecasts of already substantial earnings growth. For the coming year, Mondelez is expected to increase its earnings per share at a rate of nearly 10%.
The only blow against Mondelez is that there may be a bit of foam in the consumer staples sector after home trading has boosted some of these stocks so much in 2020. But while that stock has returned from its lows, it has actually slightly underperformed the S&P 500 since the start of the year with a gain of less than 5%, so it’s hardly like you’re chasing a stock of galloping momentum.
Also, the biggest banks in Wall Streets seem to think there is still a lot of benefits to be had in the near future. In early November, Morgan Stanley reiterated its overweight position with a price target of $ 63, and soon after Citigroup analysts launched a hedge with a buy rating and a target of $ 68 of their own. If that higher prediction holds, it’s nearly 20% up from here.
Perhaps the ultimate weak dollar game, Newmont NEM,
will benefit not only from the currency’s impact on overseas operations, but also from the possibility that a weak dollar will trigger inflation and a flight to gold.
As for the international angle, less than 20% of Newmont’s total gold production in 2019 was in North America. Even more interestingly, these domestic operations have a higher overall cost, with operations requiring $ 1,187 for every ounce removed from the ground, compared to a world average of $ 966 per ounce. If exchange rates increase international income and profitability even more, it could add up.
And with Goldman Sachs forecasting an increase of more than 22% in gold next year, it could really be out of the races if all the pieces fall into place.
Oddly, however, as this stock surged in March with coronavirus uncertainty and expectations of gold becoming a near-term safe-haven investment, it hasn’t really done much on the upside and remains at around 15% of its 2020 highs. That could mean now is a good time to claim that gold stock.
Jeff Reeves is a MarketWatch columnist. He does not own any of the stocks mentioned in this article.
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