Over the last several months I’ve increased my exposure to companies that earn foreign currency because the long overdue reversion to mean suggested the Australian dollar would weaken. That and the fact that my favourite macroeconomic forecaster George Soros had shorted the Australian dollar, and my favourite fund managers at Pie Funds were positioning for a lower dollar too.
The recent drop suggests my trust was well placed in these indicators, but it is not too late to position your portfolio to benefit from a falling dollar. Indeed, it would appear that there are still cheap stocks with foreign currency exposure available.
For example, you could buy shares in CPT Global Limited (ASX: CGO) at a lower price than I did, and roughly the same price they were purchased by Pie Funds. The tiny IT consulting company’s business is to test, tune and improve the systems set up by other (usually larger) IT businesses, with the aim of reducing operating costs for clients.
Revenue from North America almost doubled in 2014, growing to $12.3 million from $6.8 million in 2013. However, revenue from Australia decreased by over $4 million to $19.9 million – though margins were actually improved. The expected jump in profit did not eventuate, largely because of a sharp increase in “Other Expenses” of over 50%. If this increase in other expenses contines, I will have to admit my buy thesis is largely defeated, although a falling Australian dollar should at least boost earnings in Australian dollar terms. The company trades on a trailing P/E ratio of 12 and a trailing dividend yield of 6.4%. I consider it likely earnings will grow, but I doubt the dividend will.
Another little company slated to benefit from a falling Australian dollar is ICS Global Ltd (ASX: ICS), an Australian company that owns a medical billing and collections business in the UK. Essentially, the operating business provides a service to medical practitioners, and demand for its services is therefore likely to grow, as long as the company does a good job. The company has a market capitalisation of $10 million and just over $1 million cash in the bank. It earned over $600,000 in FY 2014, and reported that it had signed its biggest customer in the first quarter of FY 2015. The company trades on a trailing yield of 3.3% and earns its revenue in pounds.
Finally, there is SDI Limited (ASX: SDI), a manufacturer of dental products that Motley Fool analyst Andrew Page covered thoroughly in this article. The company benefits from a falling silver price, because silver is one of its input costs, as well as a falling Australian dollar because the majority of revenue received is in a foreign currency. A number of new products are expected to grow revenues on a constant currency basis in FY 2015. The company trades on a trailing P/E ratio of 11, and a paltry 1.3% dividend yield. However, the 2014 dividend was up 40% in comparison to 2013, and as new products begin to gain traction, there are good reasons to expect further increases.
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Motley Fool contributor Claude Walker (@claudedwalker) owns shares in CPT Global, SDI and ICS Global.