Year 2020 can be rightfully referred to as annus horribilis, with the global economy dealing with the challenges thrown by the COVID-19 pandemic. Growth pace has been hurt badly, as suggested by the International Monetary Fund’s forecast of a 4.4% decline in the world output in 2020, whereas it recorded growth of 2.8% in 2019.
The world’s largest economy — the United States of America — too felt the heat severely. Its growth projection by the IMF is (4.3%) for 2020, whereas 2.2% was recorded in 2019. It is worth mentioning here that the U.S. dollar — the most favored currency for trading in the world — too lost its sheen in the year.
The U.S. dollar index has lost ground by 5.7% so far in 2020. In particular, the index shed as much as 7.4% since March. A brief discussion on why the U.S. currency has lost and is quite likely to continue losing momentum is given below.
Reasons Why Greenback Lost/or is Losing Value
With the outbreak of the coronavirus, the United States witnessed sluggish demand and supply environment, a dip in international trade that was already suffering from import tariffs-related woes, erosion in corporate profits, and major stock indexes plunging in red territories. All these weakened growth prospects of the country and, hence, impacted the currency’s value.
Beside the above-mentioned havocs created by the pandemic, multiple countermeasures to tackle its impact made the situation worse for the currency. Firstly, the lowering of the interest rates by the Federal Reserve — aimed to infuse money into the system and boost economic activities — made the currency unattractive. Notably, the Fed lowered the interest rate to 0.10% in March. It recently maintained the target for the benchmark interest rate at 0-0.25% for the short term.
Further, the government tried to control the damages caused by the pandemic by offering various financial stimuli to various sections of the economy. Such packages are anticipated to have added to the country’s fiscal year deficits. Also, a likely improvement in foreign trade policies under the new government and its successful implementation are expected to boost growth prospects of foreign nations. This, in turn, can shift investors’ preferred investment destination from the United States to other foreign nations and, thus, contribute to the weakening of the dollar.
Impact of Weakening U.S. Dollar on Stocks
A weak U.S. currency situation is usually unwelcoming mainly for companies with high imports. However, multinational companies, especially those deriving a major chunk of revenues from international operations, are most benefitted in such a situation. Their exports are valued in foreign currencies and these, when converted, fetch a larger number of U.S. dollar revenues.
Below we provide a brief discussion on five U.S.-based companies that are potential winners in a weak dollar situation.
Apple Inc. AAPL: The company, with headquarters in Cupertino, CA, is well-recognized globally for its iconic product — iPhone. Also, it offers products like AirPod and Apple Watch as well as services like Apple Music and App store. A large part of the company’s manufacturing operations, assembly units and supply chain are located internationally. In fiscal 2020 (ended September 2020), the company sourced 45% of revenues from North America operations and the rest came from international businesses.
With an extensive global presence, it is bound to benefit from a weak dollar situation. Its endeavors to promote its service businesses through on-line platforms as well as the launch of technologically advanced devices are likely to add to its businesses worldwide. However, heavy dependence on iPhone sales, exposure in China and competition are threats for the company.
Apple presently has a Zacks Rank #3 (Hold) and a $2,153.4-billion market capitalization. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Its shares have gained 72.5% so far in 2020 as compared with the Zacks Computer - Mini computers industry’s growth of 71.7%. In the past 60 days, its earnings estimates have been revised up, reflecting bullish sentiments for its growth opportunities. Notably, an increase of 0.5% and 1.6% for fiscal 2021 (ending September 2021) and fiscal 2022 (ending September 2022) have been recorded in the past two months. Also, the company’s earnings are expected to increase 11.5% in the next five years.
Apple Inc. Price and Consensus
Apple Inc. price-consensus-chart | Apple Inc. Quote
The Procter & Gamble Company PG: The consumer products company, based in Cincinnati, OH, is a leading brand globally, with operations in nearly 70 countries. Its healthcare, beauty, fabric and home care, grooming, and baby, feminine and family care products are used in as many as 180 countries. The company derived 55.9% of revenues in fiscal 2020 (ended June 2020) from international businesses.
Economic slowdown globally as well as competitive pressures hurt the company’s operations. However, solid product offerings, the pandemic-induced demand for some products and efforts to expand business globally are boons. Presently, its market capitalization is $344.8 billion.
The company currently carries a Zacks Rank #3. Its shares have gained 11.3% so far in 2020 as compared with a 13.2% rise in the Zacks Soap and Cleaning Materials industry. Solid international operations and a weakening U.S. dollar are likely to prove beneficial for the company. Its earnings estimates increased 2.6% for both fiscal 2021 (ending June 2021) and fiscal 2022 (ending June 2022) in the past 60 days. Its earnings are predicted to grow 7.6% in the next five years.
Procter & Gamble Company The Price and Consensus
Procter & Gamble Company The price-consensus-chart | Procter & Gamble Company The Quote
McDonald’s Corporation MCD: Based in Oak Brook, IL, the company is a leading fast-food chain in the world. It has a presence in 119 countries, operating and franchising quick-service restaurants. In third-quarter 2020, the company derived 38.7% of its revenues from the U.S. businesses and the rest 61.3% came from international operations.
The COVID-19 pandemic had adverse impacts on the company’s operations. However, the operating conditions are getting better for it, both domestically and internationally, as most of the pandemic-related restrictions have been relaxed. In addition, innovative efforts like value meals, unique marketing ideas and customizations of menus are being taken to boost international businesses, especially in Canada, Germany, the U.K. and Australia.
With a market capitalization of $160.3 billion, the company presently is Zacks #3 Ranked. Its shares have gained 8.9% year to date as compared with an increase of 14.3% for the Zacks Retail - Restaurants industry. With such an international presence, the company is poised to benefit from a weak U.S. dollar situation. Its earnings estimates have increased 3.2% for 2020 and 0.5% for 2021 in the past 60 days. In the next five years, its earnings are expected to increase 8.1%.
McDonalds Corporation Price and Consensus
McDonalds Corporation price-consensus-chart | McDonalds Corporation Quote
Caterpillar Inc. CAT: It is the leading global manufacturer of construction and mining equipment as well as turbines, gas engines and other products. Beside construction and mining, it has strong footholds in the oil & gas, transportation and infrastructure sectors. The company is based in Deerfield, IL, and generated 42% of 2019 revenues from U.S. operations, while the remaining 58% were sourced from international businesses.
Weakness in the manufacturing sector due to the pandemic had a profound impact on Caterpillar’s performances so far in 2020. But the company is recovering fast as manufacturing activities have started to rebound. Improvement in the housing market, low interest rates, enhanced mining activities and the demand in aftermarket businesses are healthy growth signals for the company. Also, its focus on innovating products and building on its e-commerce businesses are enhancing its global reach and customer base.
The company, with a $98.3-billion market capitalization, currently carries a Zacks Rank #3. So far in 2020, its shares have gained 22.5% compared with the Zacks Manufacturing - Construction and Mining industry’s growth of 21.9%. The company’s earnings estimates for 2020 and 2021 have increased 2.1% and 2.4%, respectively, in the past 60 days. Earnings in the next five years are anticipated to increase 12%.
Caterpillar Inc. Price and Consensus
Caterpillar Inc. price-consensus-chart | Caterpillar Inc. Quote
General Electric Company GE: This Boston, MA-based company is known for its popular LEAP aircraft engines, healthcare solutions, heavy-duty gas turbines, and Haliade-X and Cypress wind turbines. With a solid international presence, this conglomerate is likely to gain from a weakening dollar. Notably, its U.S. and non-U.S. employee strength were 70,000 and 135,000 at 2019 end. Also, non-U.S. revenues were 59% of the year’s total revenues. The company operates through four industrial segments namely Aviation, Healthcare, Renewable Energy and Power, and one financial services arm — GE Capital.
Although the pandemic adversely impacted its operations; with the majority of related-restrictions now lifted internationally, it seems to be recovering fast. Actions to deal with the situation as well as the company’s focus on restructuring its portfolio and continue to serve its customers efficiently are proving beneficial. The military business from the domestic and international clients is healthy for Aviation; while Healthcare is enjoying solid demand for ventilators, ultrasound-related products and other equipment across the globe.
The company presently has a $94.7-billion market capitalization and carries a Zacks Rank #3. Its shares have lost 3.1% so far in 2020 but rebounded significantly in the past months. Notably, the stock surged 73% in the past three months as compared with 23.1% growth of the Zacks Diversified Operations industry. Also, its earnings estimates have improved from a loss of 4 cents to earnings of 4 cents for 2020 in the past 60 days. The estimate for 2021 has been raised by 2 cents to 30 cents during the same timeframe. The company’s earnings in the next five years are predicted to grow 4.3%.
General Electric Company Price and Consensus
General Electric Company price-consensus-chart | General Electric Company Quote
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