Market Overview

6 Stocks To Play A Strong Dollar (And 4 That Might Not Help)

Share:
Related AAPL
The Market In 5 Minutes
Warren Buffett Doubles Apple Stake, Cheers iPhone Maker's Stickiness
Buffett buys more Apple (Seeking Alpha)
Related IBM
Buffett's Bucket List Buys: The Oracle Making Unexpected Plays Late In The Game
Social Media And Anti-Trends: Trip Chowdhry Explains The Phenomenon, Provides Insight
Game Plan For The Week - Cramer's Mad Money (2/24/17) (Seeking Alpha)

The U.S. dollar has been extremely strong recently due to global economic weakness. The U.S. economy’s growth is nothing special compared to the country’s historic economic growth rate, but weakness and instability in Europe and other major economies has boosted the dollar’s strength.

What's A Strong Dollar Mean For Investors?

The strong dollar is bittersweet for equity investors. A strong dollar caps inflation, which means imports are cheaper and prices are cheaper for U.S. consumers.

However, with U.S. goods and services becoming more expensive relative to the rest of the world, American companies that rely heavily on foreign profits can suffer during times of a strong dollar. 

Low Inflation

American consumers and businesses pay less for imports and commodities during times the dollar is strong. For example, the price of oil has plummeted more than 50 percent over the past year, and that has greatly reduced energy expenses for many large American companies.

With more money in the pockets of American consumers, a strong dollar usually brings about a rise in discretionary spending.

Companies that depend on discretionary spending can see rising profits from a strong dollar.

Related Link: The 10 Highest Inflation Rates In The World

Stocks To Play A Strong Dollar (And Stocks That Might Not Help)

Typically during times of dollar strength, companies that earn a high percentage of revenue from domestic sources will do best and companies that rely on foreign revenue will suffer.

For example, Apple Inc. (NASDAQ: AAPL), International Business Machines Corp (NYSE: IBM), Chevron Corp (NYSE: CVX) and The Proctor & Gamble Co (NYSE: PG) all derive more than 60 percent of their sales from international sources and will likely see dollar-related headwinds.

Companies that derive a majority of their income domestically could see a relative boost in business.

These companies include American banks such as Bank of America (NYSE: BAC) and PNC Financial Services Group Inc (NYSE: PNC), retailers such as The TJX Companies Inc (NYSE: TJX) and Ross Stores Inc (NASDAQ: ROST), and companies that rely on discretionary spending such as AMC Entertainment Holdings Inc (NYSE: AMC) and the Cheesecake Factory Inc (NASDAQ: CAKE).

Disclosure: the author owns shares of Bank of America.

Posted-In: Long Ideas Education Short Ideas Forex Markets Trading Ideas General

 

Related Articles (AAPL + AMC)

View Comments and Join the Discussion!