Stock Ideas for a Rising US Dollar

The U.S. Dollar Index hit the highest level in over four years as the currency has become the favorite among investors around the world. The outlook remains positive for the greenback as the European Central Bank and the Bank of Japan are taking measures to keep the value of their respective currencies down.

While a strong U.S. Dollar is a good thing for the country and it shows the strength of the economy, there are negatives. As a currency increases in value it makes goods produced in the country more expensive to foreign buyers. Considering about one-third of sales of all the S&P 500 companies come from overseas it will have an impact on large U.S. multinationals. The rise in the U.S. Dollar could be a hot topic in the coming weeks as earnings season gets underway and companies discuss the affect of the currency on their bottom line.

One strategy to avoid the surge in the greenback is to focus on companies that generate a large portion of theirs sales within the borders of the U.S. Such companies will be less affected by the strong currency and could start to outperform their multi-national peers.

Sherwin-Williams (NYSE: SHW) is a paint and coatings manufacturer and distributor around the globe with a large portion of their sales in the U.S. During the most recent quarterly report the company generated 59 percent of sales from the paint stores group that are in the U.S., Canada, and Caribbean. The consumer group, which is the branded and private-label products sold mainly in North America, but also Europe accounted for 13 percent of sales. The global finishes group manufactures and sells a wide range of OEM product finishes and coatings in more than 100 countries made up 20 percent of sales. And the Latin America coatings group was 8 percent of sales.

With a large portion of sales coming from with in the U.S., SHW should be able to avoid the outside currency fluctuations better than competitors. The overall performance will hinge greatly on the housing market and any uptick in sales over the next year should benefit the company. Technically the stock has one of the best long-term charts in the market even as the housing market has progressed slowly in its recovery. As long as the stock holds the $200 level the current trend should continue.

Wal-Mart Stores (NYSE: WMT) is the largest retailer and employer in the U.S. and generates a large portion of their sales in the country. In the second quarter of the company's fiscal year 2105 the company reported consolidates sales net sales of $119.3 billion. Wal-Mart International reported sales of $33.9 billion or 28 percent of all sales. The focus on the U.S. consumer can be a double-edged sword as it will benefit from a rising U.S. Dollar, but at the same time it needs the consumer to get out and spend even as wages are barely growing.

Over the last 18 months the stock has been trading in a fairly narrow range as it heads into the holiday season. Two positives for the stock are the 2.5 percent dividend yield and the fact it has proven to hold up well during market sell-offs. This should make the stock attractive to income investors and help diversify a portfolio.

The next few weeks will be interesting as investors get a better idea of how the U.S. Dollar rise has affected the bottom line. WMT reports earnings on 11/13 and SHW will announce quarterly earnings on 10/28.