The US dollar has surged in September given a strong run of economic data which saw the AUD buying just about 87.96 US cents.
For anyone planning to go on overseas holidays, this may not be the best time. But for investors, this can be a great time to stock up on companies deriving a bulk of their revenues from the U.S.
I’ve always encouraged investors to assess a company’s long-term tailwinds and valuation before buying. However, a falling Aussie dollar is a another great tailwind for selected companies. Here are three companies that generate a large chunk of their revenues from the U.S and are therefore set to benefit from our depreciating dollar. These stocks not only offer the benefit of currency exposure, but also quality growth prospects at attractive prices.
1. Internationally recognised insurance provider QBE Insurance Group Ltd (ASX: QBE) has had a rollercoaster year, with shares down 19.2% since last year. This is due to an unfortunate run of natural disasters in 2011 and 2012 which severely tightened its insurance margins.
However, QBE’s management has gone full throttle in reviving its business functions and is expected to reap about $250 million worth of cost savings by the end of 2015. Furthermore, QBE has recently changed its reporting currency from AUD to USD, giving investors a pretty good idea of where the bulk of its revenues are coming from. Ultimately, this means dividend amounts for distribution to Australian shareholders will be higher given the conversion to AUD.
Whether it’s to take advantage of the falling dollar, or reap future growth prospects, QBE has it all.
2. With about 75% of its portfolio value denominated in US dollars and a further 26% in GBP, shopping centre giant Westfield Corp Ltd (ASX: WFD) is set to benefit from our depreciating Aussie dollar. As Westfield repatriates earnings back to Australia, a lower exchange rate will not only boost overall earnings but also its dividend yield which currently stands at 3.9%.
Even if the Aussie dollar wasn’t falling, Westfield would still be a quality stock pick given its expansion into Europe and South America. This expansion should boost earnings for the decades to come.
Trading on a modest price-to-earnings ratio of 18.7, Westfield is an attractive buy for the long-term buy-and-hold investor.
3. ResMed Inc. (CHESS) (ASX: RMD) provides a wide range of medical equipment to treat sleep apnea, a condition affecting a large chunk of the U.S population. About 55% of ResMed’s earnings come from its North and Latin America divisions, meaning shareholders in Australia are highly leveraged to currency fluctuations. Given the weak Aussie dollar, ResMed’s earnings will be even more attractive.
Also, with a persistent effort to reinvest 8%-9% of revenues in research and development each year, ResMed will have no shortage of innovative products to serve the complex needs of our ageing population.
Despite its relatively low dividend yield of 2%, ResMed’s earnings growth forecasts for FY15 and FY16 look optimistic and I think current prices are an attractive buy.
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Motley Fool contributor Aryan Norozi does not own shares in any of the companies mentioned in this article.