Things look mighty bleak for the dollar given the damage to the U.S. economy from the world’s worst coronavirus outbreak and our national debt that is soaring to new heights after Donald Trump’s tax cuts and free-wheeling spending over the last four years.
In fact, October marked the first
time since February 2013 that the euro was 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 fall by as much as 15% in value over
the next two years.
Of course, America’s currency is no stranger to waxing and
waning in influence, and we just happen to be in a weak period for the dollar. So
there’s no reason to worry we’re all doomed to trade gold or canned goods
instead of greenback.
However, investors looking for outperformance in 2021 may
want to position their portfolio now to capitalize on this currency dynamic —
because contrary to what some may think, a dollar that declines against its
international peers can actually give a lift to certain U.S.-based
multinational stocks. That’s because when sales are booked abroad in
comparatively stronger currencies, it can result in a nice boost to
profitability by simple virtue of exchange rates alone.
The U.S. Dollar Index
a measure of the U.S. currency against a basket of six major rivals, is down more than 10% from its 2020 highs and dangerously close to a new 52-week low. Here are five weak-dollar plays that could wind up ahead if the dollar continues to decline in 2021.
Semiconductor giant Broadcom
has a lot going for it right now, as evidenced by the stock’s impressive rise of more than 20% so far in 2020.
For starters, news this summer that top competitor Intel
is considering an exit from chip-making naturally lifted the foundries that do manufacture semiconductors — like Broadcom.
And with a business focused on communications devices including WiFi and Bluetooth technology, Broadcom is a play on the massive uptake in working from home as well as 5G rollouts across the telecom industry.
Broadcom’s future is equally bright. That’s because based on its 2019 financials, domestic net revenue was just $4.2 billion compared with $8.1 billion in China and a total of more than $17.3 billion in total. Broadcom’s chips are sent to other hardware and electronics manufacturers, and typically these firms are located in regions like Asia where operations are cheaper rather than in the U.S.
Throw in forecasts of nearly 10% revenue growth next year,
and the stage may be set for a nice pop next year if a weakening dollar help
lift its bottom line.
has struggled this year. It remains down more than 10% from its early-2020 highs even as other consumer staples stocks have taken off. That’s in large part because of its foodservice-reliant business that provides soft drinks to restaurants — and with coronavirus forcing people to eat at home or get their orders to go, demand for fountain drinks isn’t what it used to be.
But Coke appears to be turning a corner. Shares topped expectations after earnings in October, just in time to also ride the optimism that vaccines could help hasten restaurant reopenings in the coming months. Furthermore, it has used the business lull to focus on longer-term headwinds created by changing consumer tastes, announcing it will discontinue Odwalla juices and Tab diet soda as part of a continued restricting in its product portfolio.
That could mean the time is right to drink up Coke stock. Consider
that in 2019, less than one-third
of net operating revenue at this $220 billion staples behemoth was generated
from its North American operations. A weak dollar could lift international
profitability at the perfect time.
It’s worth noting, too, that a generous dividend north of 3%
coupled with more than 50 consecutive years of dividend increases makes
Coca-Cola a stock worth holding patiently even if things may stay a bit rocky
for the next few months.
While a number of health-care stocks related to the coronavirus vaccine have been rallying lately, Big Pharma mainstay Merck
hasn’t really gone anywhere since its initial rebound from the market lows in March. In fact, it’s actually down a hair from where it traded in early April. As the old saying goes, investors like to buy the rumor and sell the news — so now that those gains have been had, it’s time to look to the next big market trend.
Merck could be at the center of one of those opportunities. It
is enjoying big success with its Keytruda cancer treatment, which some
analysts predicted will become the best-selling
drug in the world by 2023. And investors too distracted by
coronavirus news may have missed that Merck doubled down on its dominant
position 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 is going to be a key player in fighting cancer — a disease was the world’s No. 1 cause of death and America’s No. 2 cause of death with more than 500,000 cancer deaths in 2018 and a death rate that increased every year in the 20 years prior to that, according to CDC data.
More than half of Merck’s sales come from business outside
the U.S. The currency tailwind it could enjoy next year, then, means the time
is right to consider a position in this drugmaker.
was spun off from packaged foods giant Kraft in 2012 specifically because that parent company was purely focused on the U.S. grocery market and Mondelez had a much different and international-facing profile. Case in point: North America tallied only about $7 billion of fiscal 2019 total revenue of just under $26 billion.
That’s a nice situation to be in should the dollar decline
in the coming year or two, as the currency tailwinds will come through amid
forecasts of already substantial earnings growth. For the coming fiscal year,
Mondelez is expected to grow its earnings per share at a nearly 10% rate.
The only knock against Mondelez is that there is perhaps a
bit of “froth” in the consumer staples sector after the stay-at-home
trade boosted some of these stocks so much in 2020. But while this stock did
come roaring back from its lows, it actually has slightly underperformed the
S&P 500 year-to-date with a gain of less than 5% — so it’s hardly like
you’re chasing a runaway momentum stock.
Besides, Wall Street’s biggest banks seem to think there’s
still a lot of upside to be had in the near future. In early November, Morgan
Stanley reiterated its “overweight” rating with a $63 price target,
and soon after Citigroup analysts initiated coverage with a “buy”
rating and a $68 target of their own. If that higher prediction holds, that’s
nearly 20% upside from here.
Perhaps the ultimate weak dollar play, Newmont
stands to benefit not only from both the currency’s impact on overseas operations but also on the possibility that a weak dollar sparks inflation and a flight to gold.
As for the international angle, less than 20% of Newmont’s total 2019 gold production was in North America. Even more noteworthy is that these domestic operations had a higher “all-in” cost, with operations requiring $1,187 for every ounce pulled out of the ground compared with a global average of $966 per ounce. If foreign-exchange rates boosts international revenue and profitability even more, that could add up.
And with Goldman Sachs forecasting a surge of more than 22% in gold next year, it really could be off to the races if all the pieces fall into place.
Oddly, however, while this stock surged in March along with coronavirus uncertainty and expectations of gold becoming a short-term safe-haven investment, it hasn’t really made much of a move higher and remains off about 15% from its 2020 highs. That could mean now is a great time to stake your claim in this gold stock.
Jeff Reeves is a MarketWatch columnist. He doesn’t own any of the stock mentioned in this article.