Strong jobs data out of the U.S. on Friday night suggests an interest rate hike from the Federal Reserve may arrive as soon as June, which means quality stocks exposed to U.S. dollar strength are likely to receive support in the year ahead.
Here are four stocks that could be expected to perform strongly if the U.S. economic momentum continues to gather strength.
Computershare Limited (ASX: CPU) ($13.03) is a globally focused share registry and digital administration business that generates a substantial portion of its revenues in U.S. dollars. Moreover, the company holds investable client funds that will achieve better returns if the U.S. cash rate is lifted.
QBE Insurance Group Ltd (ASX: QBE) ($13.79) is up around 20% since reporting its interim results in February, with investors also liking its exposure to a stronger U.S. dollar. Having written insurance policies QBE is able to invest its float and rising cash rates in the U.S. should be a natural tailwind for better returns.
QBE has also made progress in dumping its problematic businesses, although in my opinion the stock looks one to avoid given its valuation and track record.
ResMed Inc. (CHESS) (ASX: RMD) ($8.63) is a healthcare and sleep treatment business with significant exposure to the U.S. market. Australian holders of the chess depositary instruments (CDIs) directly benefit as the greenback appreciates as the CDIs represent a proportionate interest in the NYSE-listed stock.
With the NYSE scrip currently selling for US$65 if the AUD were to fall to 65 US cents the ASX-listed CDIs would be worth $10 on the basis of a 1/10th ownership interest in the US shares. Dividends also increase for CDI holders as they are exchanged into Australian dollars before payment.
Westfield Corp (ASX: WFD) ($9.55) is the business behind the eponymous shopping centres operated in major North American and European cities. The business has leverage to stronger consumer spending in the US, via lower unemployment or wage growth for example and has a big development pipeline including the Westfield World Trade Centre in New York. It also exchanges its dividends into Australian dollars directly benefitting Australian investors as the U.S. dollar appreciates.
Generally it's not advisable to place too much emphasis on the macro outlook when selecting stocks as company quality and value should always trump other considerations.
Although, of the above four I would avoid the accident-prone QBE and look to ResMed, Westfield and Computershare for the best returns in the years ahead.
