3 Companies That Should Benefit From a Rising Dollar
Don't look now, but the good ol' greenback is on the rise. Over the past few months, despite a correction or two, the U.S. dollar has climbed against some of the world's top currencies, including the euro and the yen.
This is due to a host of factors, including weakness in key overseas economies and the performance of American stock markets (until recently, anyway).
A strengthening dollar has a great many effects on our economy and its businesses, and we won't get into the complexities here. Suffice it to say that, broadly speaking, it tends to hurt American exporters -- because a rising dollar makes their wares more expensive -- while benefiting multinationals that sell into our markets.
Meanwhile, U.S. companies that focus heavily on selling domestically stand to benefit from a migration to USD assets.
Here's a look at a trio of companies that are poised to take advantage of a bulked-up dollar.
Although headquartered in Europe, this consumer goods behemoth specializing in food items and cosmetics has a mighty presence in the U.S. market. Unilever's products -- which include Lipton tea, Ben & Jerry's ice cream, Q-Tips, and Vaseline -- are common items in the American pantry, fridge, and medicine cabinet.
As a result, in the first half of this year the company derived $5.1 billion in revenue from the Americas. That exceeded the $4.5 billion it reaped from its home continent, comprising 32% of its total global take.
That massive U.S. revenue figure is poised to get bigger. Unilever's sales in the Americas grew only 0.4% on a year-over-year basis during the first half of 2014; the company said this thin increase owed to "negative price growth" despite volume increases. Now that the firm has the scope to compete more effectively on price, it has an excellent chance to boost that top line significantly from this part of the world.
The Japanese automaker has done an admirable job of swerving around the bad publicity surrounding its vehicles' unintended-acceleration issue -- and the ensuing $1.2 billion settlement earlier this year. In August, it posted its best-ever unit-sales figure for that month.
That follows a 2013 in which Toyota delivered nearly 10 million cars around the world to rank as the globe's top manufacturer in terms of shipments.
No international auto group can be a world-beater without succeeding in the U.S. Toyota has done a fine job maintaining and occasionally increasing its market share over the years, and it's one of the "big five" manufacturers here.
Three of those five -- General Motors, Ford, and Chrysler -- are native companies, so given Toyota's many factories and suppliers abroad, the company will enjoy a nice competitive edge thanks to the strong dollar. The company already has momentum on its side with those encouraging August sales figures; look for that to accelerate now that the exchange rate is tilting in its favor.
Given a rising currency, a natural hedge against the impact of unfavorable exchange rates is to invest in companies that are laser-focused on the domestic economy. A prime example New York Community Bancorp.
The bank's name gives away its game. NYCB is a traditional lender focused mainly on the New York City metropolitan area. It has a solid loan portfolio, as it tends to finance apartments and condominiums (compared to other cities, NYC has a high proportion of such dwellings to its overall housing stock).
Financing these kinds of buildings is great business, as demand for living space in places like Manhattan and Brooklyn is high and not likely to drop anytime soon. That means the risk of loan default is modest. As a result, NYCB's percentage of nonperforming assets (essentially, loan defaults) is remarkably low compared to its peers.
The domestic financial sector will likely see an overall boost from investors looking to plow their money into businesses that are fully or almost entirely contained to U.S. dollar markets. Not all financials are created equal, of course, and NYCB is one that really stands out from the pack.
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The article 3 Companies That Should Benefit From a Rising Dollar originally appeared on Fool.com.Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends Ford, General Motors, and Unilever, and owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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