A rising U.S. dollar can hurt some Australian companies, but here are three stocks which can gain from higher overseas earnings, ResMed Inc. (CHESS) (ASX: RMD), BHP Billiton Limited (ASX: BHP) and Sims Metal Management Ltd (ASX: SGM).
The US Federal Reserve Bank is indicating it could soon stop the quantitative easing that it started during the GFC in 2009. Later on, interest rates could begin to rise from their record lows.
This makes the US dollar more attractive to investors, ratcheting up the currency exchange. If the US dollar goes up, usually the Aussie dollar goes down.
So companies with a sizeable percentage of revenue denominated in US dollars can get a boost when those earnings are changed into Aussie dollars.
ResMed Inc. (CHESS)
The company that develops and produces breathing aids and respiratory devices gets about 56% of its revenue from its North and Latin America segment. It had a 13.9% earnings gain in FY 2014 and forecasts are for solid growth for the next two years. It pays a 2.0% yield unfranked. I like its long track record for business growth and healthcare stocks are good for weak markets.
BHP Billiton Limited
Iron ore prices are at record lows, which cuts into the revenue of "The Big Australian". However, its oil and gas business in the US is set to take off over the next several years. It is even expanding its offshore petroleum development in new areas in the Gulf of Mexico which have reportedly good prospects. That business would be all in US dollars since oil is denominated in US dollars. This oil segment could help offset the iron ore weakness in the near term, but investors still have to be careful if the Chinese economy slows further.
Sims Metal Management Ltd
This company is the biggest listed scrap metal business in the world. About 60% of revenue is from North America. The stock has been heading down for a number of years, yet recently it has hit a new 52-week high. The company announced a five-year restructuring plan that could raise earning four times. That has caught the attention of investors. Cost savings and better business performance can drive earnings improvements. It has a 1.7% yield fully franked and consensus forecasts are for earnings to grow quite strongly over the next two years.
There are always winners and losers when the US / Aussie exchange rate goes up and down. More importantly though, keep picking stocks that have rising earnings and strong growth potential.
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