One of the great controversies raging right now is which direction the dollar is going from here. There seems to be strong arguments in the camp that thinks the dollar will soon plunge and equally as strong opinions about the dollar not only hanging tough but actually increasing in value over the months ahead.
This article would be most valuable for those who believe that the dollar is about to decline and they wonder about investments that would benefit.
Of course the usual "suspects" or "beneficiaries" if the dollar tumbled from here are commodities like gold, silver, copper, oil and eventually natural gas.
That is why I believe everyone should own some GLD, SLV, FCX, PCU, USO, DBO, and UNG. When to buy these and at what price levels is up to each of us depending on our outlook and circumstances.
My friend and colleague Lou Basenese, the Senior Analyst at The Oxford Club (OxfordClub.com) gave me permission to share with you an article he wrote lately which he titled "A Second Way to Prosper From a Dollar Decline".
I do want to say that personally I don't like investing in tobacco stocks and I personally don't endorse those type of investments. That being said, here's what Lou wrote and I hope you find it as useful as I did. It certainly is a positive example of the level of work that those of us who are Oxford Club members benefit from on a regular basis.
"Last week, I suggested that you prepare for a U.S. dollar decline by scooping up shares of Philip Morris International, Inc. (NYSE: PM) because 100% of its sales come from overseas.
"Well, you should also consider buying Diageo (NYSE: DEO) — the world's largest spirit maker — for similar reasons...
"Headquartered in London, roughly 70% of the company's sales come from outside the United States. So any dollar dip will increase the value of our ADRs.
"Moreover, management concedes that positive currency tailwinds in the other countries where Diageo sells spirits will help the company easily grow earnings by double digits this year.
"Sound dollar hedge? Double-digit earnings growth? Those two factors alone justify an investment. But it gets better. Diageo also sports top-notch fundamentals...
"As the world's biggest spirits company, it operates in over 180 countries, which provides notable benefits in terms of economies of scale and an unparalleled distribution network.
"It's also the world's best spirits company, with eight of the world's top 20 brands. This leadership gives Diageo the upper hand in the hottest growth sector: emerging markets. Consumers, with newfound disposable income, flock to the aspirational qualities of its brands.
"Look no further than the most recent results for proof. Over the last six months, emerging markets in Africa and Latin America grew by 11%, outstripping all other areas.
"Another plus? Diageo spins off gobs of cash — $2.5 billion in the last year alone. Yet, management still sees room for improvement. In fact, it's rolling out another restructuring effort to increase the efficiency of the business.
"At the end of the day, we benefit from the strong cash flows because it allows management to buy back shares in the open market and increase the dividend.
"Speaking of the dividend, Diageo yields a respectable 3%, almost on par with 10-year Treasuries. As I've expressed concern over Treasuries before, I'd argue investing in Diageo for the yield alone is a safer investment.
"The fact that shares trade on the cheap — at 12.5 times earnings or roughly 30% below its historic P/E ratio — only sweetens the opportunity. On top of a solid and safe dividend, we get the potential for strong capital appreciation.
"If you're still not ready to raise your glass and purchase shares, consider this: The latest academic studies prove investing in so-called vice stocks like Diageo pay — consistently.
"In two separate studies out of Yale and Princeton, researchers proved vice stocks outperformed virtuous ones in 35 out of 37 years.
"One study attributes the outperformance to the lack of attention pension funds and other investors pay to sin stocks in order "to maintain an aura of respectability." The other believes it's because companies in sin industries benefit from high barriers to entry, thanks to strict regulations and taxation.
"Ultimately, explanations matter little. It's the investment results we care about. And so far, so good.
"We're up 18% since our entry about three months ago. Shares still have a long way to go before reaching anything close to fair value, so keep buying.
"If you're wondering why I prefer hedging against a dollar decline with stocks (instead of simply buying an ETF like the PowerShares DB US Dollar Index Bearish Fund), it's simple.
"Buying companies with significant international exposure allows us to profit in two ways — from the currency hedge and the success of the underlying business.
"Or, more plainly, it increases the number of ways we can profit, which is never a bad thing.
"Incidentally, Warren Buffett also "prefer[s] this method of acquiring non-dollar exposure." I've found following his lead is never a bad thing, either. "
Our "Thanks" to Lou and The Oxford Club for sharing this valuable insight with all of us in the Seeking Alpha Community.
Disclosure: Of the ETFs and stocks mentioned, I'm only long GLD, SLV and UNG.
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! - Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.