After a precipitous fall in four trading days for the Australian dollar from a high of US$94.02 to a low of US$91.89 this morning, it is timely to revisit those companies that may be beneficiaries.
However, before considering individual stocks, let's consider the winners in general terms as follows:
1. Australian stocks with U.S. operations.
2. Resource companies with receipts in US dollars.
3. International investments such as overseas-listed shares.
4. Retailers who have suffered from consumers buying online from overseas competitors. However, some of these gains are tempered by greater costs to import inventory.
5. To a lesser extent, those companies with both U.S. and European operations.
What stocks have additional tailwinds?
In addition to the falling Aussie dollar, it's always preferable to have additional factors supporting a stock purchase. Thus, I have cherry picked stocks that are also beneficiaries of:
Exceeding consensus forecasts in the August reporting season.
In some cases, relatively high dividends that provide a measure of share price support.
The selections are as follows:
Rio Tinto Limited (ASX: RIO). The effect on full-year 2014 underlying earnings of a 10 % fall in the Aussie dollar would be a $515 million profit boost for arguably the world's best iron ore stock. Additionally, in my opinion, Rio Tinto was the standout during the August reporting season by convincingly beating consensus expectations.
The majority of brokers subsequently lifted the target price for the stock to an average of around $80. This represents a 30% upside from yesterday's closing price of $61.77. Finally, the company has all but promised higher capital returns after the full-year 2014 result and is fast becoming a yield play with projected dividend yields for FY2014 and FY2015 of around 3.8% and 3.9% respectively.
The blood plasma product manufacturer CSL Limited (ASX: CSL) currently earns in excess of 40% of its revenue in North America. CSL's reporting season result exceeded both consensus and company guidance. This was largely attributable to volume-driven gains which were indicative of market share gains. Revenue growth in CSL Behring was a standout. With a Return on Investment (ROI) of over 30%, a dividend yield of 2% is entirely prudent but doesn't provide downside support. However, the recent results and potential currency windfall will likely provide share price outperformance.
Honourable mentions should also go to BHP Billiton Limited (ASX: BHP), which gains approximately $100 million in net profits from every one cent fall in the currency. Also, dividend yields for FY2015 and FY2016 are forecast to be around 3.8% and 3.9% respectively.
Computershare Limited (ASX: CPU) also derives 79% of its revenue from overseas, including 42% from the USA. QBE Insurance Group Ltd (ASX: QBE) reports in U.S. dollars and garners approximately 72% of its revenue from overseas, including 38% from North and Latin America. Projected dividend yields for FY2014 and FY2015 are 3.2% and 4.2% respectively.
