Since June 2010, the dollar has been on a strong downward trend that really accelerated in the first half of 2011. As the Fed continued to purchase longer-term securities, interest rates pushed lower, causing an outflow of capital to other currencies and weakening the dollar. More recently, the dollar has bounced around amid economic uncertainty across the globe.
Currencies like the Swiss franc and Japanese yen have performed marvellously against the dollar. The euro has also showed strength recently despite the ongoing debt circus. Given that the dollar has depreciated against essentially all other major currencies, investors have started to wonder how to make proper investment decisions off a weak currency.
There are a few major exporters within the US that generate large amounts of revenue from overseas sales. The weak dollar has allowed their products to become more competitive, and appear cheaper, thus boosting sales and bottom lines. In this commentary, I hope to outline a few strong companies that have a large presence overseas and that will continue to benefit from the depreciating dollar.
The first company on the list is Coca-Cola (NYSE:KO). The company produced strong results in Q2 2011. Revenue from Europe was the strongest on record, while returns from the Pacific and Latin American regions were also quite impressive. Coke recently unveiled a $4 billion plan to improve its business in China, which accounts for roughly 7% of their revenue. The company has been increasing its dividend payout since the late 1970s. Their payouts currently provide an annual yield of 2.7%, stronger than most Treasury coupons. With dividend growth projected to be in the double digits and 17 buy recommendations, Coca-Cola would certainly make a prudent addition to any investor’s portfolio.
McDonald's (NYSE:MCD) earns most of its revenue from overseas. Over 40% of their Q2 revenue was generated from Europe. The weakening dollar likely helped to boost this area of their income statement. MCD also reported strong sales on a monthly basis in July, with US stores up 4.4% and Europe rising 5.3%. Similar to Coke, McDonalds pays out a nice 2.7% dividend. The company has also been increasing its payout for some time. The stock price continues to make new highs as the potential for growth in the coming years is realized and priced in. McDonalds has 19 buy recommendations with price targets in the triple digits.
Yum Brands (NYSE:YUM) also has a significant presence in the overseas food markets. More than 65% of its revenue in the second quarter came from China and its “international division.” The international division contains all countries other than the US and China. The impressive overseas demand for their products has boosted Yum's bottom line for the past few years, not to mention that fact that the dollar has gotten beaten up against most Asian currencies. Yum's dividend yield is around 2%, not a bad deal when you consider the possible price appreciation that comes with such a large overseas exposure. This will allow Yum's profits to grow in the future, as the US dollar remains weak.
As US monetary policy remains easy, it is going to be tough for the dollar to be supported in the currency markets. There are plenty of other safe haven investments that will outperform the US dollar. However, by searching for companies with exposure to the overseas markets where the dollar is especially weak will allow investors to reap the inflated profits. Improved demand for emerging economies will boost revenue and the stock price for the above mentioned companies.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in YUM over the next 72 hours.