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2 stocks to benefit from a weaker dollar: Rio Tinto and BHP Billiton

Australian exporters such as Rio Tinto (ASX: RIO) and BHP Billiton (ASX: BHP) are likely to have breathed at least a small sigh of relief when listening to recent comments made by RBA governor Glenn Stevens.

One line in particular could stand out as a beacon of hope for major exporters who have become tired of a strong dollar. As Stevens stated, “we think investors are underestimating the likelihood of a significant fall in the Australian dollar at some point”.

Indeed, a weakening of the dollar could be great news for exporters such as Rio Tinto and BHP Billiton. That’s because a weaker dollar will boost their top and bottom lines simply because they are paid in currencies worth more than the Aussie dollar.

Of course, Rio and BHP have had a tough time of it in recent years. As well as having to contend with a strong dollar, metal prices have weakened substantially as demand from China in particular has waned. However, the next few years could prove to be a lot more prosperous than the previous few years have been.

For instance, Chinese PMI data has recorded its first expansion in around six months and, as one of their largest markets, this could bode well for Rio and BHP. Indeed, Rio Tinto’s earnings per share (EPS) forecasts are impressive, with the company expected to improve on its disappointing EPS of $1.97 last year to deliver $5.03 in the current year and $5.34 next year – a growth rate of 6.2% in 2015. This results in a forward price-to-earnings (P/E) ratio of just 12, which makes Rio Tinto a stock with great potential.

Meanwhile, BHP Billiton’s bottom line is set to fall by 7.9% over the next two years, although a weaker dollar could be the catalyst for the company to deliver improved profitability. Trading on a P/E ratio of 13.8 (trailing 12 months) and being far more diversified than Rio Tinto, BHP Billiton still could have a great future too.

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Motley Fool contributor Peter Stephens owns shares in BHP Billiton.

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