The U.S. dollar appears to be in trouble.
The U.S. Dollar Index (DXY) has fallen from a high of nearly 103 in January to just under 93. The last time the DXY was this low was January 2018. The dollar had a strong run for over two years now.
Now, there’s a lot working against the dollar to push it lower, including the U.S. Treasury’s fiscal funding to help stymie the effects of the pandemic. The U.S. government passed an initial stimulus package that injected $2.2 trillion into the economy — the CARES Act.
Lawmakers are considering a second round of stimulus that would be at least $1 trillion — the HEALS Act.
Injecting so much money so quickly into the economy has brought about fears of inflation. Meanwhile, overseas, economic recoveries are taking hold faster than in the U.S. This is further pressuring the U.S. dollar as investors flock to faster-growing assets in foreign markets.
Multinational companies — U.S. companies generating sales overseas — will be some of the biggest benefactors from a weakening dollar. As the dollar weakens, the companies will be able to convert overseas profits into more U.S. dollars.
Here are three companies that can leverage their overseas exposure to benefit shareholders.
Microsoft Corporation (MSFT)
The tech giant Microsoft — with a $1.6 trillion market cap — has tremendous international exposure. Nearly half of Microsoft’s $143 billion in revenue comes from outside the U.S.
Micorosoft’s web server and cloud computing businesses do well overseas. The company is betting big on blockchain as well and has made a bid to purchase social media platform TikTok.
Analysts expect the tech company to grow earnings at an average rate of 15% over the next half-decade. This tops the expected growth for the likes of Google (GOOG) and Cisco (CSCO).
Chevron Corporation (CVX)
On average, Chevron generates over half of its net income from outside the U.S. Most of its income is from international upstream operations — drilling and operating oil and natural gas wells. Chevron is one of the better picks among major oil and gas companies as it has more exposure to oil, notably, compared to Exxon Mobil (XOM).
Oil prices benefit from a weak dollar. The price of West Texas Intermediate (WTI) crude oil now trades at $42 a barrel — well off the $15 per barrel lows we saw at the end of April. A weak dollar makes oil cheaper for foreign investors, helping boost demand.
It’s exposure to oil is nice and the fact that CVX gets most of its revenues from overseas is an important added bonus. It’s also paying a 5.9% dividend yield and it’s shown a commitment to raising that dividend, having increased its quarterly payout by 8.4% in January.
McDonald’s Corp (MCD)
McDonald’s generates 55% of its operating income from international markets. Its international business brought in $11.4 billion in revenues last year and just over $4.8 billion in operating income.
As the dollar weakens, McDonald’s international businesses will do well. However, the big unknown will be COVID-19 and the lasting impact on store sales. Nonetheless, this fear could offer a great chance to buy into a well-known megabrand for relatively cheap.
Shares are down just over 5% for the year and now trades at 25 times next year’s earnings estimates. That’s cheaper than the likes of Starbucks (SBUX) and Chipotle Mexican Grill (CMG). Lest we forget its 2.5% dividend yield and 43 years of consecutive annual dividend increases.
