While Americans may take pride in the recent dollar strength, three iconic American companies could be at risk of getting hurt by the surging greenback.
According to RiskReversal.com Global Macro Editor Enis Taner, McDonald’s, Caterpillar, and Federal Express could all see their shares weakened by the stronger dollar.
“These guys are some of the most internationally exposed names on a percentage-of-revenue basis of the large cap U.S. multinationals,” he said.
Taner points out that both Caterpillar and McDonald’s get over two-thirds of their respective sales from outside the United States. FedEx gets about 30% from outside U.S. borders, but its international trade volumes tend to track the dollar.
The problem is simple. As the dollar appreciates, U.S. exports become more expensive for foreign consumers. That makes American exporters less competitive. Moreover, profits generated abroad in a local currency become diminished by an appreciating dollar.
Of course, these companies spend millions hedging their currency exposure in unique ways, so lumping them into the same basket and discarding them due to dollar strength might be premature. But currency volatility will make it tougher for CFOs to manage their international businesses going forward.
So what does this mean if you’re a stock investor?
“Stay away from these types of names,” Taner said. “I think in the coming quarters, currency headwinds could be citied for earnings misses.”