The fall in commodity prices has resulted in sharp declines in the currencies of resource and agriculture-dominant economies such as ours. The Australian dollar (AUD) has fallen to US$0.74 from a recent high of over US$0.81 in May. Many prominent analysts and economists are predicting further significant falls. Leading investment firms BlackRock and UBS have forecast that the AUD will drop to US$0.70 by the end of 2015. Additional declines are expected into 2016, with Fairfax Media Limited outlets reporting that Morgan Stanley believes the AUD will slide to US$0.62 in 2016.
This downtrend in the AUD will produce winners and losers. Three companies that I expect to benefit from the declining AUD are Amcor Limited (ASX: AMC), CSL Limited (ASX: CSL) and Computershare Limited (ASX: CPU). Let's examine the case for each.
Amcor Limited is a global packaging company that derives around 95% of its earnings from operations outside of Australia, including 30% from the U.S. Amcor's results are reported in U.S. dollars, so a fall in the AUD can be expected to increase its share price. Another positive factor for Amcor is its healthy dividend yield. Currently standing at 3.5%, Amcor's dividends are forecast to increase at a rate of 12-14% across the next two years.
With the Reserve Bank of Australia (RBA) tipped to reduce interest rates further, I believe that the search for yield will further boost the price of Amcor's stock. Amcor continues to expand overseas, as evidenced by the acquisitions of Souza Cruz (Brazil) and Packaging India Private Limited (India) in recent months. The company is well paced to enjoy above average growth into the future.
CSL Limited is the world's largest supplier of blood products and has a growth record that is second to none. Over the past 10 years it has increased its net profit by more than 20% per annum, justifying the price-to-earnings premium that its share price attracts. CSL is a major player in the growing global healthcare market, with ageing populations in the developed world increasing demand for its products. Given that the company generates the bulk of its revenue overseas, its bottom line is set to improve with further declines in the AUD. CSL's position in a defensive industry with a strong record of growing shareholder returns only adds to its appeal.
Computershare Limited is a leading share registry and investor services firm. In addition to its activities in Australia and New Zealand, Computershare also operates share market registries in:
- Asia
- Africa
- Canada
- Europe
- United Kingdom
- United States
Computershare gives investors exposure to more than 20 countries. The U.S. market alone is responsible for almost 45% of the company's revenues. These offshore earnings streams will be a source of growing income if the AUD continues to fall.
Foolish takeaway
There is no science to forecasting changes in currency values. That said, for most of this year the AUD has hovered around its long-term average of US$0.76. Ongoing weakness in commodity prices, anticipation that the U.S. Federal Reserve will increase interest rates later this year and the expectation of further interest rate reductions by the RBA here at home suggests that the current AUD weakening cycle could continue for some time. Smart investors should make sure that they have exposure to companies with overseas income streams. A bias to U.S. dollar earnings is a good way to go, and Amcor, CSL and Computershare all fit that bill.
