Recently, I’ve had quite a bit to say about the fast paced growth we’ve seen in the US economy. My biggest problem with growth at an unsustainable rate is that it tends to push the value of the dollar up; harming foreign trade in the process. While this is a real concern, I do want to be clear that not all major stocks will be affected by the fast growing dollar’s value. So, I’m going to share a few industries and specific stocks with you that are safe from the damaging effects a strong United States Dollar. We’ll also talk about some of the stocks that will most likely continue to struggle. So, let’s get right to it!
Small Caps Are Somewhat Of A Safe Bet
When the value of the dollar rises at a much faster rate than other currencies around the world, big companies that are major players in the foreign trade suffer. However, the smaller companies tend to do most of their business locally. With that said, small cap assets are most likely not going to have to worry about lower foreign sales. Then again, small cap investments aren’t necessarily as stable as the types of assets you’d see on the Dow Jones or S&P 500. So, there is a bit of a trade off. However, small caps aren’t the only ways to avoid the danger of fast paced US Dollar growth.
Aside from small caps, there are also several large companies that will most likely not be affected by the strong dollar. Here are my favorites by industry…
- Big Media – Big media providers that do most of their business here in the United States will not be affected by a strengthening United States Dollar. My favorite big media stocks include Comcast ((CMCSA) even though their customer service is garbage) and CBS (CBS).
- Retailers – While we would generally expect for retailers to have their hands in quite a bit of foreign trade, there are several retail giants that do most of their business here in the United States. These giants are most likely going to enjoy the strong dollar. They include CVS (CVS), Nordstrom (JWN), Home Depot (HD), Kroger (KR), and L Brands (LB).
- Tax Prep Leaders – I couldn’t imagine tax prep leaders having any reason to do mass amounts of foreign trade. So, in my eyes, this is a very safe industry. The bigger players here are H & R Block (HRB) and Intuit (INTU).
- Food & Beverage – Food and beverage makers that are widely known in the United States rather than around the world will most likely do very well as well. Some of my favorites in this space include Hormel (HRL), Dr. Pepper Snapple (DPS), Tyson (TSN), and Kraft (KRFT).
- Electric Utilities – This is another great sector that won’t have to worry about foreign trade, or the fall of oil prices for that matter. Great electric utilities stocks to follow include Southern Company (SO), Duke Energy (DUK), and Dominion Resources (D).
- Big Tobacco – While some big tobacco companies are going to run into foreign trade struggles, there are a couple of them that won’t have that issue. Both Lorillard (LO) and Reynolds American (RAI) do most of their sales here in the United States.
Companies That Will Struggle With Foreign Trade
While there are quite a few companies that aren’t going to have any problems with the fast paced growth of the United States dollar, there are also quite a few that will. Here are some big brands I’ve been following that have openly announced that foreign trade is an issue…
- Google (GOOG) – In Google’s Q4 summary, they made it clear that the strong US Dollar was an issue. Essentially, in Google’s case, because of the currency conversion, people in other nations aren’t willing to pay as much money per click as they once were.
- Coca Cola (KO) – While Coca Cola’s North American revenue was up due to the consumer’s willingness to pay more for unhealthy soft drinks, foreign trade drove their Q4 revenue down by around 55%. This will continue to be a problem moving forward.
- Microsoft (MSFT) – For Microsoft, PC sales were on the decline in Q4 and their earnings fell hard. The company placed the blame on the strong US Dollar causing foreign sales to drop dramatically.
- Other Big Names – Some other of the many stocks that are going to have foreign trade issues as a result of the continually strengthening US Dollar include Proctor and Gamble (PG), Caterpillar (CAT), and Pfizer (PFE).
The bottom line is that the fast paced growth in the US Dollar is becoming the talk of the town. As more and more corporations point the finger at the strong US Dollar as a reason for drops in revenue, more and more investors are growing concerned that foreign trade is going to start to put their portfolios at risk. While concerns over foreign trade may be a cause to move a few things around, it’s important to remember that even in the large cap market, there are several companies that do most of their business right here in the United States!