4 stocks to benefit from a falling Aussie dollar

Unless you are planning an overseas holiday, a fall in the Aussie dollar is not necessarily a bad outcome. As investors it is potentially rewarding to invest in stocks with great fundamentals that have seen their share prices capped by the prevailing high currency.

In recent days the currency has plummeted from a high of US$94.02 to a low of US$90.92. This fall by over 3 cents represents a 3.3 % tumble. Before discussing individual stock beneficiaries, let’s examine if the decline is sustainable. Many market commentators are anticipating further currency weakness as there are several factors at play including:

1. Chinese data releases indicating restrictions on credit growth which formerly underpinned investment demand.

2. A detrimental impact on Australia’s terms of trade caused by the steady decline in iron ore and coal prices.

3. The final straw appears to have been a strengthening US dollar due to potential upward pressure on cash rates in the United States.

What stocks are the main beneficiaries?

In a recent article I highlighted five stocks including Rio Tinto Limited (ASX: RIO), where a 10 % fall in the Aussie dollar would result in a $515 million lift in full-year 2014 underlying earnings. Similarly, BHP Billiton Limited (ASX: BHP) gains approximately $100 million in net profits from every 1 cent fall in the currency.

The broking division of leading global bank Citigroup recently looked at the currency impact on FY2015 net profit after tax (NPAT) for Australian stocks. The parameters were a fall in the currency from US$95.00 to a low of US$88.00. In addition to BHP and Rio Tinto, some of the stocks highlighted were:

Cochlear Limited (ASX: COH) – projected NPAT currency uplift of 23%.

Fortunately the fall in the currency coincides with a surprise improvement in second half earnings during the August reporting season.

Newcrest Mining Limited (ASX: NCM) – projected NPAT currency uplift of 25%.

While the recent profit release was hampered by another big write-down (largely attributable to Lihir), the company’s underlying profit was well ahead of expectations.

Santos Ltd (ASX: STO) – projected NPAT currency uplift of 19%.

The company surprised with an earlier-than-expected dividend increase. Another dividend increase is expected from the GLNG project which is converting coal seam natural gas (CSG) to liquefied natural gas (LNG) for export to global markets.

Western Areas Ltd (ASX: WSA) – projected NPAT currency uplift of 28%.

Like Santos, the dividend surprised to the upside during the reporting season. In addition, the overall result significantly exceeded market expectations.

A constant theme that is supportive of the above stocks is the insatiable desire for high-yielding stocks. Fortunately our top analysts have been researching just such a stock. If you would like to find out the name for FREE, just click on the link below to receive your report immediately. Stocks like this one have a juicy dividend yield, strong growth and an attractive entry level and will help you build a stable portfolio.

NEW! The Motley Fool's #1 Dividend Pick

Don't miss it! Top Motley Fool investment advisor Scott Phillips has just named his #1 dividend-paying stock for 2014-2015. With solid growth prospects and a fat, fully franked dividend, this ASX stock could be a huge winner for your portfolio. Discover the name and code FREE by clicking here now.

Motley Fool contributor Mark Woodruff does not own shares in any of the companies mentioned in this article.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.