It seems Goldman Sachs' number 1 investment prediction for 2014 is coming to fruition, as the Aussie dollar tumbled to new lows of US$87.76 overnight.
In selecting stocks, I have a strong preference for backup tailwinds, as the Aussie dollar may just as quickly rise again. So while the following stocks have significant leverage to a falling currency, they have had recent catalysts for a share price re-rating. If you like, the falling dollar is just added cream for stocks with existing positive fundamentals.
Fortescue Metals Group (ASX: FMG): Since the release of its FY2013 profit, a noticeable change in expectations occurred in the broking community due to declining costs, which ensured consensus earnings forecasts were exceeded. A surprise dividend of 10 cents (4 cents expected), triggered increasing confidence about cash flows. Subsequent early repayments of several debt facilities confirmed this confidence. All iron ore sales result in an inflow of US dollars and Fortescue benefits greatly from a depreciating currency.
Sonic Healthcare (ASX: SHL): The reporting season revealed upgrades from brokers, due to a US$60 million cost-cutting program in the U.S., above consensus pathology margins and strong medical centre margins. It derives 49% of its revenue from overseas, of which North America comprises 21%. This international medical diagnostics company, offering laboratory medicine, pathology and radiology services to the medical community is one of my favourite recommendations.
Crown Resorts (ASX: CWN): The broking community is talking of exciting prospects due to the rise of the middle to upper class gambler. This is set to benefit operations in its Asia-wide strategy, with Macau the current standout. The tourism sector was predicted to be one of the six fastest growing industries in a report by consultancy firm Deloitte. Crown is set to benefit from increasing overseas visitors, taking advantage of a lower dollar. They may choose from the Melbourne, Perth and soon-to-be Sydney casinos.
SAI Global (ASX: SAI): Reporting season upgrades were due to an improving growth and margin outlook. Additionally the value is undemanding and the defensiveness of recurring revenues is a plus. An increasingly regulated world and widely dispersed supply chains, constitute tailwinds for SAI Global's products and services. The company derives 40% of group earnings overseas, 24% of which comes from North America. The company helps organisations manage risk, achieve compliance and drive business improvement through its information services, compliance and assurance divisions.
Cochlear (ASX: COH): It may appear that I have strayed from the additional tailwinds theme for this blue chip stock, but Cochlear is a unique proposition in the Australian stock market. It sources over 40% of revenue from the Americas and is highly sensitive to exchange rate movements.
Foolish takeaway
In my opinion, while a falling Aussie dollar would provide extra impetus, it is not a prerequisite for the continued rise of these stocks. Should you have existing holdings, I would recommend increasing your exposure if the currency ratchets down even further.
