3 Top Stocks That Stand to Gain From a Stronger Dollar
The U.S. dollar, recently, soared to its highest level in nearly two-decades against its key counterparts. The dollar’s striking rise comes among multi-decade high inflation and an uptick in U.S. bond yields.
Nonetheless, a stronger dollar impacts international sales of multinational companies. But small-cap companies stand to gain from a wider domestic revenue exposure, which protects them from the effect of a stronger dollar. Some such companies are Assertio Holdings, Inc. ASRT, Clipper Realty Inc. CLPR and Consolidated Water Co. Ltd. CWCO.
US Dollar Strengthens on High Inflation
Citing a MarketWatch article, the ICE US Dollar Index advanced 1.5% to 106.69 on Jul 5, its highest level since 2002. Notably, the US Dollar Index began trading at around 96 at the beginning of the year. While the euro, the Canadian dollar and the Australian dollar underperformed, emerging market currencies too took a hit.
So, what’s behind the rise in the U.S. dollar? The consumer price index (“CPI”) soared 8.6% in May, its highest level since December 1981, and is mostly driven by a rise in energy and food prices. What’s more, inflation is widely expected to remain elevated in the near future, indicating that interest rates in the economy should eventually catch up.
The Fed, by the way, has not only hiked interest rates recently by 75 basis points, but has also kept the door open for further rate hikes to curb the rise in prices of essential goods and services. Notably, a rate hike might impact the stock market, but it makes bond investments in the country more lucrative, thereby increasing the demand for the currency. To put things into perspective, the yield on the 10-year U.S. government bond has now jumped from 1.4% to 2.8% in a year. Thus, investors can easily reinvest their money from maturing bonds in new bonds with higher yields.
Having said that, investors shouldn’t completely shun equities.
Stronger Dollar a Boon for These Stocks
An increasing dollar, for sure, hinders the earnings growth of companies that generate the bulk of their revenues overseas. After all, such companies are bare to foreign exchange risk between the United States and the countries they function in. However, unlike such multinational companies, small-cap companies that mostly generate their revenues in the United States are way better as they are cushioned against the currency translation impact of a strong greenback.
We have thus picked three such stocks that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). Such stocks also have a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Assertio Holdings is known for providing medicines in areas of neurology, inflammation and pain. The company is based in Lake Forest, IL. ASRT is a specialty pharmaceutical company that currently has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has moved 14.3% north over the past 60 days. ASRT’s expected earnings growth rate for the current year is a whopping 1,433.33%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Clipper Realty is a real estate investment trust that owns and operates commercial as well as residential properties primarily in the New York metropolitan area. CLPR presently has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has moved 10.3% north over the past 60 days. CLPR’s expected earnings growth rate for the current year is 16.2%.
Consolidated Water is involved in the development and operation of water treatment plants in such areas of the United States where water is scarce or nonexistent. CWCO currently has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has moved 26.4% north over the past 60 days. CWCO’s expected earnings growth rate for the current year is 191.3%.
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Consolidated Water Co. Ltd. (CWCO) : Free Stock Analysis Report
Clipper Realty Inc. (CLPR) : Free Stock Analysis Report
Assertio Holdings, Inc. (ASRT) : Free Stock Analysis Report
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