Recently, at the latest G-20 meeting of top financial advisers from around the globe, serious concerns were raised about the falling value of the American dollar against world currencies. While Secretary of the Treasury Timothy Geithner offered reassurances that there was no active plan to devalue the dollar, it also is clear that there is no active plan to stop its decline. In fact, it is the Federal Reserve’s talk of possible quantitative easing that most fuels these concerns and has sent the US dollar to a 15 year low against Japan’s yen and down .8% to $1.4070 for the euro.
Since offering a stimulus package did not help significantly and lowering interest rates hasn’t tempted increased consumer spending, allowing the dollar or slip further against other floating currencies may be a risky but clever option. Geithner now suggests that a weaker US dollar may actually be in our nation’s national best interests. Certainly, it would appear that this may be the factor that has been stimulating growth, especially among companies that do significant foreign export business.
Stock brokers are going to be recommending that investors take a second look at some of these American companies profitability recently. One such Issaquah, Washington based-business, Costco (COST) has experienced a growth in sales of $1.6 billion since last year. This represents a 7.8% revenue increase. Of that amount, 4% came from US locations and a whopping 14% from international sales. The momentum has continued into September, and shows no sign of slowing.
Costco (COST), the largest membership warehouse company in the world and 4th largest US retailer, appears to be benefiting from these “foreign trade tailwinds.” With a net sales increase of 11.3%, the company’s shares are also looking attractive, up 14.1% from a year ago. Costco’s success is definitely tied to its ability to offer high sales and rapid turnover with honed operating efficiency. As gas prices rise, more and more customers are pulled into the parking lot to fill up their vehicles and shop at the same time. Smart marketing makes this company’s future look strong and bright. Whether through online trading or using a traditional stock broker, investing here looks like a great opportunity.
Another company that has benefited from the declining dollar value is the world’s largest farm equipment maker, Deere (DE) . More familiarly known as John Deere, this Moline, Illinois-based company has seen its net sales climb 6% in the last 9 months with a favorable translation of currency of 3%. Once again, the weakened dollar is making US exports on items such as construction, transportation, and farm equipment more affordable to overseas markets. A company such as Deere, with significant foreign sales and a strong American base seems like a really safe investment opportunity right now for stock brokers and online trading.
Does a declining American dollar send a message of national weakness to the rest of the world and to this country’s citizens? Maybe not. In the years 1995-2002, a “strong” dollar raced ahead of other floating currencies by as much as 30%. This may have sounded great and felt even better when taking a vacation abroad, but it was probably not a realistic relationship for American currency to maintain with that of her world neighbors. The gradual decline now being experienced may actually be a necessary correction to that over-valued global status.
Interestingly, with over 2 million manufacturing jobs lost since 2001, one might wonder if the “strong” dollar played a nefarious role in this global slowing down of the world economy. Whether or not that is the case, the re-adjustment in valuation of the dollar does seem to be making US products more competitive and increasing the job opportunities in foreign exports. Because imports become more expensive, Americans are encouraged to “buy American.” More product sales translates into more job opportunities and a recovering economy.
This may be a prudent time to make stock market portfolio adjustments, including such trustworthy companies as Deere and Costco who have created significant foreign markets and will be able to expand even further as their profitability levels continue to rise. As the S&P Index demonstrates, those companies drawing from overseas markets are currently up 5.5 percentage points above those who primary revenue is limited to American sources. Who would have thought a declining dollar could be so valuable? (Click to enlarge)
Disclosure: Long COST, Long DE
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