With the Australian dollar trading at around 93.7 US cents, now may well be the time to stock up on those companies with overseas earnings.
It’s well-known that the Reserve Bank of Australia views the Australian currency as overvalued, and has in the past attempted to talk it down to what it believes is its fair value – around 85 US cents.
With the US economy recovering, a stronger US dollar should mean a lower Aussie dollar, giving ASX-listed stocks with foreign earnings a nice boost to their revenues and profits.
Goldman Sachs’ chief economist Tim Toohey also noted in March this year that headwinds to Australian growth are intensifying, and is forecasting the Aussie dollar to hit 80 US cents by March next year.
Five stocks that may be worthy of your consideration include CSL Limited (ASX: CSL), Flight Centre Travel Group (ASX: FLT), Carsales.Com Ltd (ASX: CRZ), Ainsworth Game Technology Limited (ASX: AGI) and Seek Limited (ASX: SEK).
All five are outstanding quality companies, generating strong profit margins, return on equity, with great management and are likely to be generating much higher profits in five to ten years’ time.
Picking up these stocks now, before the dollar drops could be a sensible strategy. And while they all may currently look expensive based on P/E ratios, all five have strong growing earnings that may make today’s prices look cheap. Carsales and Seek have yet to see significant offshore earnings, possibly making them the best picks out of the five.
Even if the Aussie dollar doesn’t fall in the short-term, I’d consider any of those five stocks as long-term buys anyway given their quality – I already own four of them. But if they aren’t ‘sexy’ enough for you, you might want to consider the Motley Fool’s top stock for 2014 instead.