Currency cycles and their changes against the U.S. dollar affect equity multiples because they reflect and drive capital inflows and outflows. Dollar cycles also influence earnings through a complex variety of channels encompassing both the top line and margins, but go well beyond the obvious translation impacts on foreign earnings and competitiveness. The United States, with the world's reserve currency, the largest economy and the largest financial markets, naturally has drawn global capital inflows. In up cycles, outperformance driven partly by inflows with the added kicker of currency appreciation has seen momentum build until the dollar's valuation got stretched and the current account deficit large. The equity strategy team at Deutsche Bank A.G. (DB) thinks the dollar will continue its slow grind higher.
The Deutsche Bank team thinks that these are the stocks to buy that will take advantage of that move. These should also survive currency fluctuations better than their peers in a changing currency environment.
Alaska Air Group Inc. (ALK), along with most of the domestic U.S airlines, is expected to thrive. With the stronger dollar eventually knocking down oil prices, the airlines will benefit, as the cost of jet fuel is one of their top expenses. The Thomson/First Call price target for this fast growing regional airline is $71. Investors are paid a 1.3% dividend.
Honda Motor Co. Ltd. (HMC), along with other Japanese and European automakers, will benefit as their currencies weaken against the U.S. dollar and make their cars cheaper at the dealership to U.S. consumers. The consensus price target for the iconic Japanese company is $43.65. Investors are paid a 2.1% dividend.
PNC Financial Services Group Inc. (PNC) and other top U.S financial names with strong domestic business plans will thrive as the dollar edges higher. Banking is basically a domestic business, and regionals are almost exclusively a domestic business model. The consensus price target for PNC Financial is $78. Investors are paid a 2.3% dividend.
Celanese Corp. (CE) and most U.S. chemical companies should do well as the dollar gains strength. For the second quarter, which ended June 30, Celanese met expectations on revenues and missed estimates on earnings per share. The consensus price target for this top chemical name is $54. Investors are paid a tiny 0.7% dividend.
Unilever N.V. (UN) is a foreign consumer staples company that will really benefit as its products become cheaper in the United States. Unilever offers its products under various brand names, such as Axe, Becel, Flora, Ben & Jerry's, Bertolli, Blue Band, Rama, Brylcreem, Cif, Clear, Comfort, Domestos, Dove, Fissan, Heartbrand, Hellmann's, Amora, Knorr, Lifebuoy, Lipton, Lux, Omo, Pond's, Radox, Rexona, Signal, Closeup, Simple, St Ives, Sunlight, Sunsilk, Surf, TRESemmé, Timotei, VO5 and Vaseline. The consensus price target for this top international stock is $46. Investors also receive a very solid 3.4% dividend.
Diageo PLC (DEO) has an impressive collection of alcohol products that sell very well in the United States. The company offers a range of brands, including Johnnie Walker Scotch whisky, Crown Royal Canadian whisky, J&B Scotch whisky, Buchanan's Scotch whisky, Windsor Premier Scotch whisky, Bushmills Irish whiskey, Smirnoff vodka, Ketel One vodka, Cîroc vodka, Captain Morgan rum, Baileys Irish Cream liqueur, Jose Cuervo tequila, Tanqueray gin and Guinness stout. The consensus price target for the stock is $137. Investors receive a 1.8% dividend.
ARM Holdings PLC (ARMH) is a top chip name to buy that will benefit from a currency advantage. ARM designs the technology that is at the heart of advanced digital products, from wireless networking and consumer entertainment solutions to imaging, automotive, security and storage devices. The consensus price target for this top United Kingdom tech name is $50. Investors are paid a 0.5% dividend.
News Corp. (NWS) has the top domestic cable news company in its Fox Cable Network. However, with many major overseas media outlets, the company can weather the higher dollar and still have strong earnings. There was no consensus price target listed for the stock.
Royal Dutch Shell PLC (RDS-A) is an energy company that will be able to exploit currency strength with its worldwide markets supporting product share growth. The consensus price target for this top stock is not listed. Investors are paid a tremendous 4.7% dividend.
Exxon Mobil Corp. (XOM) also has tremendous global business to offset any slide in the United States. The consensus price target for this major integrated oil company is $96. Oil may be quoted in dollars, but Exxon is in just about every market around the globe. Shareholders are paid a 2.7% dividend.
GlaxoSmithKline PLC (GSK) is a top pharmaceutical name to buy for the strong dollar scenario. Despite being embroiled in a messy bribe and kickback situation currently in China, the company has a host of top products and drugs that will continue to sell well in the United States. The consensus price target for the stock is $54, and investors receive a strong 4.2% dividend.
Obviously the top names to buy to exploit a strong dollar are based outside the United States and do a tremendous amount of business here. While the domestic stocks also should continue to perform well if the economy improves, it makes sense for investors to have foreign exposure for portfolio diversity. These top stocks that pay solid dividends may be just the ticket.