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Things look very bleak for the dollar given the damage to the U.S. economy from the world’s worst coronavirus outbreak and our national debt reaching new highs after Donald Trump‘s tax cuts and coasting spending over the past four years.
In fact, October was the first time since February 2013 that the euro was used more frequently than the dollar as the currency of choice for global payments, according to the Society for Worldwide Interbank Financial Telecommunications. And recently, Goldman Sachs warned that the dollar could drop 15% in value over the next two years.
Of course, the US currency is no stranger to the rise and fall of its influence, and we happen to be in a period of weakness for the dollar. So there is no reason to worry that we are all doomed to trade gold or canned goods instead of the greenback.
However, investors looking to outperform in 2021 may want to position their portfolios now to capitalize on this monetary momentum – because contrary to what some might think, a dollar that falls against its international peers may in fact give a boost to certain multinational actions based in the United States. . Indeed, when sales are booked abroad in comparatively stronger currencies, it can lead to a nice increase in profitability simply by virtue of exchange rates.
The US Dollar DXY Index, + 0.11%, a measure of the US currency against a basket of six major rivals, is down more than 10% from its 2020 highs and dangerously close to a new 52 week low. Here are five low dollar games that could end if the dollar continues to fall in 2021.
Semiconductor giant Broadcom AVGO, -0.26%, has a lot to offer right now, as evidenced by the stock‘s impressive rise of over 20% so far in 2020.
For starters, the news this summer that main competitor Intel INTC, -0.50%, is considering an exit from chipmaking has naturally lifted up foundries that make semiconductors – like Broadcom.
And with a company focused on communications devices, including WiFi and Bluetooth technology, Broadcom is playing a game of mass adoption of work from home as well as 5G deployments in the telecommunications industry.
The future of Broadcom is just as bright. Indeed, based on its 2019 financial data, the national net income was only $ 4.2 billion, compared to $ 8.1 billion in China and a total of over $ 17.3 billion. in total. Broadcom’s chips are sent to other hardware and electronics manufacturers, and typically those companies are located in regions like Asia, where operations are cheaper than in the United States.
Add in revenue growth forecasts of nearly 10% next year, and the stage could be set for a big explosion next year if a weakened dollar helps boost its results.
True, Coca-Cola KO, -0.86% has struggled this year. It remains down more than 10% from its early 2020 highs even as other consumer staples stocks have taken off. Much of this is because of its foodservice-dependent business providing soft drinks to restaurants – and with the coronavirus forcing people to eat at home or take their orders, demand for fountain drinks is slipping. more what it was.
But Coca seems to be turning a corner. Stocks beat expectations after results in October, just in time to also capitalize on optimism that vaccines could help hasten restaurant reopens in the coming months. In addition, he took advantage of the lull in business to focus on the longer-term headwinds created by changing consumer tastes, announcing that he will stop selling Odwalla juices and diet tab sodas in the market. part of an ongoing restriction of its product portfolio.
This could mean that now is the time to drink coca broth. Consider that in 2019, less than a third of the net operating revenue of this $ 220 billion commodity giant was generated by its North American operations. A weak dollar could improve international profitability at the perfect time.
It’s also worth noting that a generous dividend north of 3%, coupled with over 50 consecutive years of dividend increases, makes Coca-Cola a stock worth patiently owning even though things can. remain a bit unstable over the next few months.
While a number of health stocks related to the coronavirus vaccine have rallied in recent times, Big Pharma mainstay Merck MRK, + 0.07% has really gone nowhere since its initial rebound by compared to market lows in March. In fact, he’s actually a hair’s breadth away from where he was traded in early April. As the old saying goes, investors love to buy the rumor and sell the news – so now that those gains have been made, it’s time to look to the next big market trend.
Merck could be at the center of one of these opportunities. It is having great success with its cancer treatment Keytruda, which some analysts say will become the world’s best-selling drug by 2023. And investors too distracted by the coronavirus news may have missed that Merck doubled down its dominant position in the oncology market. with the $ 2.75 billion acquisition of biotech start-up VelosBio in November.
The pandemic has certainly disrupted the economy, the stock market and our lives. But in 2021 and beyond, Merck will be a key player in the fight against cancer – a disease was the number one cause of death globally and the second leading cause of death in America with over 500,000 cancer deaths in 2018 and a death rate that increased each year for the previous 20 years, according to CDC data.
More than half of Merck’s sales come from companies outside of the United States. The tailwind it could take advantage of next year therefore means that now is the time to consider a position in this drugmaker.
Mondelez Internaitonal MDLZ, -0.79% was derived from packaged food giant Kraft in 2012 precisely because that parent company was purely focused on the US grocery market and Mondelez had a very different and lean profile. ‘international. Case in point: North America recorded only about $ 7 billion in total revenue for fiscal 2019 of just under $ 26 billion.
This is a good situation if the dollar falls over the next year or two, as the currency’s favorable winds will manifest amid forecasts of already substantial earnings growth. For the coming year, Mondelez is expected to increase its earnings per share at a rate of nearly 10%.
The only blow against Mondelez is that there may be a bit of “foam” in the consumer staples sector after home trading has boosted some of these stocks so much in 2020. But then that headline came back from its lows, it’s actually slightly underperformed the S&P 500 since the start of the year with a gain of less than 5% – so it’s not like you’re chasing aggressive action.
In addition, the biggest banks on Wall Street seem to think there is still a lot of benefit to be had in the near future. In early November, Morgan Stanley reiterated its “overweight” rating with a price target of $ 63, and shortly after Citigroup analysts launched a hedge with a “buy” rating and a target of $ 68. clean. If that higher prediction holds, it’s nearly 20% up from here.
Perhaps the ultimate weak dollar Newmont NEM + 0.39% game should benefit not only from the currency’s impact on overseas operations, but also the possibility that a weak dollar could trigger the inflation and a flight to gold.
Looking at the international angle, less than 20% of Newmont’s total gold production in 2019 was in North America. Even more remarkably, these domestic operations had a higher “all-in” cost, with operations requiring $ 1,187 for every ounce removed from the ground, compared to a world average of $ 966 per ounce. If exchange rates increase international income and profitability even more, it could add up.
And with Goldman Sachs forecasting a more than 22% increase in gold next year, it could really be out of the game if all the pieces fall into place.
Oddly, however, as this stock surged in March with coronavirus uncertainty and expectations of gold becoming a short-term safe-haven investment, it hasn’t really risen much and remains at around 15% of its highs. of 2020. This could mean that now is the time to claim this gold stock.
Jeff Reeves is a MarketWatch columnist. He does not own any of the stocks mentioned in this article.