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If corporate executives have been fretting over a stronger dollar, the scenario is likely to take a turn for the worse soon. With the Federal Reserve hinting at an interest rate hike this month and the euro losing value post the French election surprise, the dollar is set to grow stronger.
A stronger dollar is denting profits for U.S. multinationals that rely heavily on exports. However, smaller, domestically focused companies gain appeal. Such companies are unperturbed by currency gyrations as they generate most of their revenues from within the U.S.
Fed Lending Support to the Dollar
The ICE Dollar Index rose 0.4% to settle at 100.28 late on Mar 7. The dollar, which drifted lower in the past two months after hitting a 14-year high in mid-December, is preparing to bounce back. The dollar had already been able to surpass its major resistance level of 100, with several traders saying that such a resistance level has become support.
The dollar strengthened against most of its rivals on rate hike expectations. Yellen indicated that a rate hike is in the offing this month with more slated to follow later this year, in a speech to The Executive’s Club of Chicago. She said that the “Federal Open Market Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the Federal funds rate would likely be appropriate”. The language is similar to what Fed had used in the past to signal at a rate hike. Fed officials, including some dovish members, also reiterated that a March interest rate increase is ‘on the Table’.
Based on CME Group 30-Day Fed Fund futures prices, which have long been used to express the market’s views on the likelihood of changes in U.S. monetary policy, indicate an 84% chance of a rate hike this month. By increasing interest rates, a nation can attract foreign investors who seek highest risk-adjusted returns. Subsequently, there is an increase in demand for the home currency in order to be able to invest in areas where the interest rates are higher.
Euro Dips as French Election Plot Thickens
Weakness in the euro due to uncertainty over the upcoming elections in France also boosted the dollar. Alain Juppe, the former Prime Minister of the country, confirmed that he was not ready to run the election. This development is likely to boost the chances of anti-European Union candidate Marine Le Pen.
If Juppe contested the elections, he would have won the first round, with centrist candidate Emmanuel Macron coming second, which eventually could have knocked Le Pen from contention, according to an opinion poll. Juppe replaced the scandal-hit Francois Fillon as the centre-right candidate.
The news sent the euro to $1.0592, down 0.25% from $1.0621 ahead of the Juppe announcement. Markets are also uneasy about the elections to be held in Germany and Netherlands, which constrained the euro despite upbeat economic data across the Eurozone.
Who Benefits from a Stronger Dollar?
Stronger dollar hammers profits at multinationals. The strengthening of the dollar makes large U.S. companies with significant international exposure bleed as exported products become expensive to foreign buyers. A stronger dollar clearly makes U.S. multinationals less competitive, from technology to energy.
Technology is most vulnerable to movements in dollar. A number of big brand names including Apple Inc. (AAPL - Free Report) , International Business Machines Corporation (IBM - Free Report) and Oracle Corporation (ORCL - Free Report) generate half of their sales abroad. The energy industry is also affected by currency fluctuations and could affect major players such as Occidental Petroleum Corporation (OXY - Free Report) and Halliburton Company (HAL - Free Report) .
On the contrary, U.S. small-caps are relatively immune to the dollar strength and stand to benefit. These companies generate the bulk of their revenues from the U.S. and thus don’t have to worry about their products becoming expensive for non-U.S. buyers or foreign exchange risks while repatriating overseas profits.
5 Top Domestic Players to Buy
As mentioned above, a stronger dollar has acted in favor of smaller, domestically focused companies. We have, thus, selected five such companies that have a market capitalization of less than $2 billion.
These stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). Such stocks also boost a VGM score of ‘A’ or ‘B’. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Big 5 Sporting Goods Corporation (BGFV - Free Report) operates as a sporting goods retailer in the western U.S. The company has a Zacks Rank #1 and a VGM score of ‘A’. Big 5 Sporting Goods’ estimated growth rate for the current year is 35.4%, higher the industry’s gain of 12.8%. The company outperformed the Retail - Miscellaneous industry over the last one year (+27.2% vs. +3%).
Comstock Resources, Inc. (CRK - Free Report) acquires, develops, explores, and produces oil and natural gas properties in the United States. The company has a Zacks Rank #2 and a VGM score of ‘A’. Comstock Resources’ estimated growth rate for the current year is 77.5%, more than the industry’s addition of 24.5%. The company outshined the Oil and Gas - Exploration and Production - United States industry over the last one year (+142% vs. +30.2%).
ePlus inc. (PLUS - Free Report) provides information technology (IT) products and services, flexible leasing and financing solutions, and enterprise supply management in the U.S. The company has a Zacks Rank #2 and a VGM score of ‘A’. ePlus’ estimated growth rate for the current year is 18.5%, more than the industry’s gain of 6.3%. The company traded higher than the Business - Software Services industry over the last one year (+73.2% vs. +4.8%). You can see the complete list of today’s Zacks #1 Rank stocks here.
Sterling Construction Company, Inc. (STRL - Free Report) operates as a heavy civil construction company in Texas, Utah, Nevada, Colorado, Arizona, California, Hawaii along with a few other states in the U.S. The company has a Zacks Rank #2 and a VGM score of ‘A’. Sterling Construction’s estimated growth rate for the current year is 198.7%, way higher than the industry’s increase of 25.1%. The company outperformed the Building Products - Heavy Construction industry over the last one year (+73.4% vs. +35.6%).
Cardiovascular Systems, Inc. develops, manufactures, and markets devices to treat vascular diseases in the United States. The company has a Zacks Rank #2 and a VGM score of ‘B’. Cardiovascular Systems’ estimated growth rate for the current year is 95%, way higher than the industry’s gain of 3.3%. The company outperformed the Medical - Products industry over the last one year (+172.5% vs. +10.9%).
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5 Top Stocks to Buy on the Dollar Rally
If corporate executives have been fretting over a stronger dollar, the scenario is likely to take a turn for the worse soon. With the Federal Reserve hinting at an interest rate hike this month and the euro losing value post the French election surprise, the dollar is set to grow stronger.
A stronger dollar is denting profits for U.S. multinationals that rely heavily on exports. However, smaller, domestically focused companies gain appeal. Such companies are unperturbed by currency gyrations as they generate most of their revenues from within the U.S.
Fed Lending Support to the Dollar
The ICE Dollar Index rose 0.4% to settle at 100.28 late on Mar 7. The dollar, which drifted lower in the past two months after hitting a 14-year high in mid-December, is preparing to bounce back. The dollar had already been able to surpass its major resistance level of 100, with several traders saying that such a resistance level has become support.
The dollar strengthened against most of its rivals on rate hike expectations. Yellen indicated that a rate hike is in the offing this month with more slated to follow later this year, in a speech to The Executive’s Club of Chicago. She said that the “Federal Open Market Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the Federal funds rate would likely be appropriate”. The language is similar to what Fed had used in the past to signal at a rate hike. Fed officials, including some dovish members, also reiterated that a March interest rate increase is ‘on the Table’.
Based on CME Group 30-Day Fed Fund futures prices, which have long been used to express the market’s views on the likelihood of changes in U.S. monetary policy, indicate an 84% chance of a rate hike this month. By increasing interest rates, a nation can attract foreign investors who seek highest risk-adjusted returns. Subsequently, there is an increase in demand for the home currency in order to be able to invest in areas where the interest rates are higher.
Euro Dips as French Election Plot Thickens
Weakness in the euro due to uncertainty over the upcoming elections in France also boosted the dollar. Alain Juppe, the former Prime Minister of the country, confirmed that he was not ready to run the election. This development is likely to boost the chances of anti-European Union candidate Marine Le Pen.
If Juppe contested the elections, he would have won the first round, with centrist candidate Emmanuel Macron coming second, which eventually could have knocked Le Pen from contention, according to an opinion poll. Juppe replaced the scandal-hit Francois Fillon as the centre-right candidate.
The news sent the euro to $1.0592, down 0.25% from $1.0621 ahead of the Juppe announcement. Markets are also uneasy about the elections to be held in Germany and Netherlands, which constrained the euro despite upbeat economic data across the Eurozone.
Who Benefits from a Stronger Dollar?
Stronger dollar hammers profits at multinationals. The strengthening of the dollar makes large U.S. companies with significant international exposure bleed as exported products become expensive to foreign buyers. A stronger dollar clearly makes U.S. multinationals less competitive, from technology to energy.
Technology is most vulnerable to movements in dollar. A number of big brand names including Apple Inc. (AAPL - Free Report) , International Business Machines Corporation (IBM - Free Report) and Oracle Corporation (ORCL - Free Report) generate half of their sales abroad. The energy industry is also affected by currency fluctuations and could affect major players such as Occidental Petroleum Corporation (OXY - Free Report) and Halliburton Company (HAL - Free Report) .
On the contrary, U.S. small-caps are relatively immune to the dollar strength and stand to benefit. These companies generate the bulk of their revenues from the U.S. and thus don’t have to worry about their products becoming expensive for non-U.S. buyers or foreign exchange risks while repatriating overseas profits.
5 Top Domestic Players to Buy
As mentioned above, a stronger dollar has acted in favor of smaller, domestically focused companies. We have, thus, selected five such companies that have a market capitalization of less than $2 billion.
These stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). Such stocks also boost a VGM score of ‘A’ or ‘B’. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Big 5 Sporting Goods Corporation (BGFV - Free Report) operates as a sporting goods retailer in the western U.S. The company has a Zacks Rank #1 and a VGM score of ‘A’. Big 5 Sporting Goods’ estimated growth rate for the current year is 35.4%, higher the industry’s gain of 12.8%. The company outperformed the Retail - Miscellaneous industry over the last one year (+27.2% vs. +3%).
Comstock Resources, Inc. (CRK - Free Report) acquires, develops, explores, and produces oil and natural gas properties in the United States. The company has a Zacks Rank #2 and a VGM score of ‘A’. Comstock Resources’ estimated growth rate for the current year is 77.5%, more than the industry’s addition of 24.5%. The company outshined the Oil and Gas - Exploration and Production - United States industry over the last one year (+142% vs. +30.2%).
ePlus inc. (PLUS - Free Report) provides information technology (IT) products and services, flexible leasing and financing solutions, and enterprise supply management in the U.S. The company has a Zacks Rank #2 and a VGM score of ‘A’. ePlus’ estimated growth rate for the current year is 18.5%, more than the industry’s gain of 6.3%. The company traded higher than the Business - Software Services industry over the last one year (+73.2% vs. +4.8%). You can see the complete list of today’s Zacks #1 Rank stocks here.
Sterling Construction Company, Inc. (STRL - Free Report) operates as a heavy civil construction company in Texas, Utah, Nevada, Colorado, Arizona, California, Hawaii along with a few other states in the U.S. The company has a Zacks Rank #2 and a VGM score of ‘A’. Sterling Construction’s estimated growth rate for the current year is 198.7%, way higher than the industry’s increase of 25.1%. The company outperformed the Building Products - Heavy Construction industry over the last one year (+73.4% vs. +35.6%).
Cardiovascular Systems, Inc. develops, manufactures, and markets devices to treat vascular diseases in the United States. The company has a Zacks Rank #2 and a VGM score of ‘B’. Cardiovascular Systems’ estimated growth rate for the current year is 95%, way higher than the industry’s gain of 3.3%. The company outperformed the Medical - Products industry over the last one year (+172.5% vs. +10.9%).
Just Released – Driverless Cars: Your Roadmap to Mega-Profits Today
In this latest Special Report, Zacks’ Aggressive Growth Strategist Brian Bolan explores a full-blown technological breakthrough in the making – autonomous cars. He also spotlights 8 stocks with tremendous gain potential to feed off this phenomenon. Click to see the stocks right now >>