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4 Stocks Surging on 4-Month High Dollar Strength

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Strong U.S. housing starts data pushed the dollar to a four-month intraday high yesterday against a basket of key currencies. This promising data proved yet again that the U.S. economy is in sound shape. It was borne out by other recent data readouts including upbeat retail sales and rebounding jobs numbers.

The International Monetary Fund (IMF) too confirmed that the U.S. economy would remain less affected by Brexit woes. The report showed that the U.S. is in a far better situation than the economies of U.K., the European Union and Japan to name a few.

As the U.S. economy strengthened, so did the dollar, which eventually calls for investing in companies whose operations have a more domestic focus. Unlike companies having international operations, products of domestic oriented companies will remain cheap, which will at the same time not hurt their incomes.

Dollar Strengthens on Strong Housing Data

The ICE U.S. dollar index that measures the greenback’s strength against a trade-weighted basket of six major currencies hit an intraday high of 97.17 before settling at 97.10, up 0.56% on Tuesday. Such an intraday high was not seen since March.

Sturdy housing data helped this widely watched gauge of the dollar’s value to rally higher. U.S. housing starts rose 4.8% to a seasonally adjusted rate of 1.189 million in June from the previous month, according to the Commerce Department. Starts on single-family homes climbed 4.4% in June from May, to 778,000. A bellwether for upcoming construction, building permits too rose 1.5% to 1.153 million in June. May’s permits were downwardly revised.

Upbeat Retail and Jobs Reports Confirm Solid Footing

According to the Commerce Department, sales at retail stores and restaurants advanced 0.6% in June from the prior month to a seasonally adjusted $456.98 billion. Household spending was broad-based, with sales excluding autos and gasoline advancing by 0.7%. These positive retail sales numbers indicate sturdy consumer spending levels this spring.

When it comes to jobs numbers, things are also looking bright. The U.S. economy created a total of 287,000 jobs in June, significantly higher than the consensus estimate of 177,000, according to the Bureau of Labor Statistics. The tally was also considerably higher than May’s downwardly revised jobs number of only 11,000.

Other major economic reports also suggest that the economy is on a solid ground. Manufacturing activity climbed to its highest level in June in almost 16 months, while the service sector index in the U.S. jumped to a seven-month high.

IMF Trims Growth, Economy Still in Sound Shape

Even though the IMF trimmed the U.S. growth forecast to 2.2% this year from the prior 2.4%, it did say that the economy would be sheltered from Brexit induced volatility. IMF also confirmed that the cut was mostly due to weaker-than-expected first quarter GDP results, which by the way is a closed chapter especially when we consider a slew of strong economic reports in June.

Besides, when we compare the state of other major economies, the U.S. is in a far better shape. IMF cut U.K.’s growth forecast for this year to 1.7% from a prior 1.9%, thanks to Brexit woes. The Eurozone didn’t escape unscathed either as its growth for 2017 was trimmed to 1.4% from a prior 1.6%. Both the pound and the euro declined against the dollar on Tuesday.

In Japan, Prime Minister Shinzo Abe’s move to come up with additional stimulus measures raised doubts about the strength of the economy. This weakened the yen against the dollar yesterday. The Chinese economy is growing but at only half of the official estimates, according to a survey of Chinese sales managers.

Buy These 4 Stocks with Little Overseas Exposure

As mentioned above, the U.S. economy is still in a better shape compared to other major economies. It has in the past weathered many storms, emerging from them stronger. This has eventually improved the strength of the U.S. dollar versus a basket of important foreign currencies.

Thanks to the strength in the dollar, companies having exposure to the domestic market will be at an advantageous situation compared to those with substantial overseas operations. That is because companies with significant exposure to the overseas markets will see their revenues getting hampered as prices of American goods and services will be more expensive with a stronger dollar. Hence, it will be prudent to invest in companies with operations limited to the U.S. (read: How a Strong Dollar is Affecting Your International Investments).

We have selected four such stocks with mostly domestic operations that have a Zacks Rank #1 (Strong Buy) or #2 (Buy). Moreover, we have narrowed down our search with 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 scores. Such a score allows you to eliminate the negative aspects of stocks and select winners.

KB Home (KBH - Free Report) operates as a homebuilding company in the U.S., constructing and selling attached and detached single-family residential homes, townhomes, and condominiums. KBH has a Zacks Rank #2 and a VGM score of ‘B’. The company’s estimated growth for the current year is a whopping 61.2%.

Dean Foods Co processes and distributes milk and other dairy and dairy products in the U.S. DF has a Zacks Rank #1 and a VGM score of ‘A’. The company’s estimated growth for the current year is a solid 25.5%.

AMN Healthcare Services, Inc. provides healthcare workforce solutions and staffing services in the U.S. AHS has a Zacks Rank #2 and a VGM score of ‘B’. The company’s estimated growth for the current year is an encouraging 36.4%.

Gray Television, Inc. (GTN - Free Report) is a television broadcast company that owns and/or operates television stations and digital assets in the U.S. GTN has a Zacks Rank #2 and a VGM score of ‘B’. The company’s estimated growth for the current year is more than 100%.

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