Top 6 Stocks as the US Dollar Rises

Top 6 Stocks as the US Dollar Rises

UPDATED Nov 27, 2022

  • The U.S. Dollar has risen, with the U.S. Dollar Index reaching its highest levels since 2002.
  • A strong dollar means that imported goods are cheaper to buy, so American companies selling imported goods to the domestic market should see margins strengthen.
  • Opportunities arise for logistics companies as cheaper imports should lead to higher shipping volumes.

6 companies

Walmart Inc. engages in the operation of retail, wholesale, and other units worldwide.

Why WMT?

Improving profit margins on internationally sourced merchandise.

  • Walmart is one of the largest importers in the world, importing approximately 930,000 twenty-foot container equivalent units (TEU) of merchandise each year. When the U.S Dollar is strong, it becomes relatively more affordable to purchase and import these goods to the United States because each dollar has more purchasing power. Walmart’s huge reliance on imports will mean that - ignoring logistics costs - the profit margin on each imported item sold increases.

Rewards

  • Trading at 14.3% below our estimate of its fair value

  • Earnings are forecast to grow 19.22% per year

  • Earnings have grown 7.5% per year over the past 5 years

Risks

  • Significant insider selling over the past 3 months

  • Has a high level of debt

View all Risks and Rewards

Best Buy Co., Inc. retails technology products in the United States and Canada.

Why BBY?

Declining Yen makes Japanese electronic goods more appealing.

  • Japan’s consumer electronics sector is one of its largest industries. Brands like Canon, Nikon, Nintendo, Panasonic, Sony and Yamaha are all exported from Japan for sale globally. Electronic goods retailers in North America like Best Buy will be able to import these electronics at a far more advantageous price point if the U.S Dollar continues its upwards trend and the Yen continues to exhibit a decline. Profit margins on these goods will see an uplift and should help to offset some of the impacts caused by tougher economic conditions.

Rewards

  • Trading at 48% below our estimate of its fair value

  • Earnings are forecast to grow 9.57% per year

Risks

  • Significant insider selling over the past 3 months

  • Profit margins (3.2%) are lower than last year (5.1%)

View all Risks and Rewards

United Parcel Service, Inc. provides letter and package delivery, transportation, logistics, and related services.

Why UPS?

Cheaper imports should increase parcel volumes.

  • With inflation already putting stress on household finances, consumers may look to foreign markets for their online shopping needs as exchange rates work in their favor. UPS and its peers should see an increase in shipments to American consumers, with receipts in U.S. dollars being an added bonus.

Rewards

  • Trading at 3.6% below our estimate of its fair value

  • Earnings grew by 73.5% over the past year

Risks

  • Earnings are forecast to decline by an average of 0.08% per year for the next 3 years

  • Has a high level of debt

View all Risks and Rewards

General Motors Company designs, builds, and sells trucks, crossovers, cars, and automobile parts and accessories in North America, the Asia Pacific, the Middle East, Africa, South America, the United States, and China.

Why GM?

Cheaper imported raw materials lowers manufacturing costs.

  • While General Motors manufacture their cars domestically, many of the electrical components and raw materials are sourced from foreign markets and imported to the States. A stronger U.S. dollar means these raw materials should be able to be sourced at a competitive price, improving margins at a time where the company may see a decline in vehicle exports owing to the exchange rate increasing costs for foreign markets.

Rewards

  • Price-To-Earnings ratio (6.7x) is below the US market (14.8x)

Risks

  • Debt is not well covered by operating cash flow

View all Risks and Rewards

Genuine Parts Company distributes automotive replacement parts, and industrial parts and materials.

Why GPC?

Imported car parts sold in the US are now less expensive to import.

  • Much like Walmart, any goods imported for sale within the United States should see slightly improved profit margins thanks to the rise in the dollar. Considering 75% of Genuine Parts’ business by revenue is U.S. domestic, they should see quantifiable benefits on the sales of their imported products offered through their 5,988 NAPA Auto Parts stores.

Rewards

  • Earnings are forecast to grow 5.96% per year

  • Earnings grew by 45.7% over the past year

Risks

  • Has a high level of debt

View all Risks and Rewards

Delta Air Lines, Inc. provides scheduled air transportation for passengers and cargo in the United States and internationally.

Why DAL?

US dollar goes further for Americans traveling overseas spurring on international travel.

  • A strong US dollar isn’t just great news for businesses. Americans traveling overseas will find that the US dollars in their pocket are now getting them further at the currency exchanger. As a result, Delta Airlines could see an influx in US-based travelers heading overseas in pursuit of a holiday where the cost of living is comparatively cheaper thanks to a strong US dollar. Delta’s partnerships with Air France, KLM and Virgin Atlantic have helped provide Delta passengers with a service network that spans over 60 countries across 6 continents. Given international passenger revenue has recovered 81% of its pre-COVID numbers, we can expect the rising US dollar to further strengthen the recovery.

Rewards

  • Trading at 11.9% below our estimate of its fair value

  • Earnings are forecast to grow 38.26% per year

  • Became profitable this year

Risks

  • Interest payments are not well covered by earnings

  • Significant insider selling over the past 3 months

  • Large one-off items impacting financial results

View all Risks and Rewards

Simply Wall St analyst Bailey Pemberton and Simply Wall St have no position in any of the companies mentioned.