3 U.S. Stocks to Avoid After China's Devaluation of the Yuan (Revised)

China devalued its tightly controlled currency Tuesday following a slump in trade, allowing for the biggest single-day decline in the yuan in a decade. The reason behind the devaluation is that the central bank is attempting to make the state-controlled exchange rate more market-orientated. The seemingly desperate move from the central bank allowed the yuan to depreciate almost 2% against the U.S. dollar.

 The increasing of market forces on China's currency has several implications, not only for China, but in other nations around the word as well. Increased market forces on the currency could make the yuan be further devalued, which could have a major impact on companies that rely heavily on the country for sales growth and revenues.

 Companies that rely on China for sales will be affected due to the lower purchasing power. As the yuan slips against the dollar, consumers and businesses in China will see their currency worth a bit less which will make the purchase of foreign goods more difficult, though it should make exports even more competitive.

Below are 3 stocks that currently hold low Zacks Ranks and whose businesses could be affected greatly in the near future based on their presence in China.

Wynn Resorts Ltd.

Owner and operator of destination casinos, Wynn Resorts Ltd. WYNN, is a gambling stock whose largest market is in the gambling enclave of Macau, China. With revenue exposure to China of 69.9%, a weakening of the yuan could have a major effect on the company. The gaming stock is currently a Zacks Rank #5 (Strong Sell), and the company has seen major declines in both its revenues and its stock price in the recent past.

WYNN's most recent earnings report showed dismal performance levels, with a miss on earnings estimates of $0.23, or 23.7%, and actual revenues coming in lower than expected, showing a decline of 36.8% year over year. Gross gaming revenues fell by double digits in each month of the quarter in Macau, mostly due to an anti-graft corruption drive from the government that has lowered the amount of people coming into the casinos.

WYNN's stock price closed around $104 on August 10th, down from nearly $200 at the same time a year ago. The company has already been dealing with major struggles recently, and with a weakening of the yuan likely, its heavy reliance on revenues from China could present even more challenges, and potentially further the stock's decline.

Qualcomm Inc.

Based in San Diego, California, Qualcomm Inc. QCOM develops and delivers innovative wireless communications products and services based on the company's CDMA technology. While the company operates in several countries, it is most reliant on China, with 49.8% of its revenue having exposure to the country. QCOM is currently a Zacks Rank #4 (Sell), with its stock being on the decline in the past few months, and a drop in value of the yuan could definitely hurt the company.

QCOM's recent earnings report did post earnings that beat the Zacks Consensus Estimate, but overall results were not very positive. The company lowered its guidance for the next quarter, and the revenue it reported was down 15.4% sequentially and 14.3% year over year. QCOM has held a low Zacks Rank since late May of this year, and that rank is seemingly poised to stay low in the near future, especially as the company could potentially face increased challenges in China.

 Altera Corporation

Altera Corporation ALTR designs, manufactures, and markets a broad range of high-performance, high-density programmable logic devices and associated development tools, focusing on ease of use, lower risk, and fast time-to-market.  With 30% of its sales coming from China, the near-term outlook for this Zacks Rank #4 (Sell) remains challenged, despite the pending Intel INTC acquisition. 

While Altera was able to slightly beat the Zacks Consensus EPS estimate in the most recent quarter, its earnings figures declined 34.1% year over year, and its revenues decreased by 15.7% year over year for the quarter as well. A weakened yuan could further weigh down the company moving forward. It seems as though avoiding ALTR is the play right now, and it may remain the smart move in the near future too.

Bottom Line

The devaluation of the yuan by the Central Bank of China will produce effects to be felt by several nations, a multitude of companies, the U.S. markets, and yes, probably investors too. The above stocks are ones that have low Zacks Ranks and may be headed for further decline, but there are other stocks that may be affected by a decline of the yuan as well.

Moving forward, the effects of a decline in the yuan will be something that investors have to be sure to keep an eye on, especially if their portfolios hold companies that have revenue streams with high exposure to China.

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(We are reissuing this article to correct a mistake.  The original article, issued August 11, 2015, should no longer be relied upon.)

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