Strong-Dollar Stocks to Buy While the Greenback Is King

Not all U.S. companies have been hurt by the dollar's year-long rally. Companies that share one key trait - let's call them strong-dollar stocks - are thriving.

Many multinational companies have seen the strong U.S. dollar eat into their earnings over the past few quarters.

That's because a strong dollar makes U.S. goods more expensive to foreign buyers, while making imported goods cheaper in the United States.

In January Procter & Gamble (NYSE: PG) blamed the strong dollar for a 31% drop in profits in the December quarter. Overseas sales account for two-thirds of the company's revenue.

dollar stocksExpect more of the same from a lot of big companies as we head into a fresh earnings season. Nearly one out of three (30%) of the companies in the Standard & Poor's 500 get more than half of their revenue from outside the United States.

But we'll hear a different story from the strong-dollar stocks. This group of companies has little or no exposure to foreign markets. That is, they sell most or all of their goods and services within the United States.

In times of a strong dollar, that's a major advantage.

The U.S. dollar has had an extraordinary run over the past year. It's up more than 22% over the past 12 months - quite a jump for a currency. And this isn't likely to change any time soon, despite a slight pullback in March.

The main reason is that other central banks in the world, particularly the European Central Bank and the Bank of Japan, have become much more aggressive with monetary easing than the U.S. Federal Reserve.

"The bigger, broader pieces are that the U.S. economy should still outperform and the Fed is likely to raise interest rates sooner than everyone else. The dollar strength story is still intact, we're just in a pause because the dollar lacks a catalyst to push it to new highs," Camilla Sutton, chief currency strategist at Scotiabank in Toronto told Reuters.

That means these strong-dollar stocks are good bets for the foreseeable future...

Where to Find Strong-Dollar Stocks

At the most basic level, any U.S. company that derives all or nearly all of its revenue domestically qualifies as a strong-dollar stock.

But some sectors are more likely to harbor strong-dollar stocks, making good ones easier to find.

Small-caps are one good place to start, as most tend to be U.S.-focused. And one sector that has been thriving among the small-caps is biotech. The biotech sector is up 47.79% over the past 12 months.

Instead of hunting down individual strong-dollar stocks, investors can buy the iShares Nasdaq Biotechnology ETF (Nasdaq: IBB). This ETF holds 150 stocks, which helps reduce the higher risk of owning stocks that can soar or plummet based on the fortunes of a single drug or treatment. The IBB is up nearly 18% in 2015.

Another excellent sector for strong-dollar stocks is retailing. The strong dollar makes the merchandise they purchase overseas cheaper, while selling it in the U.S. shields them from any downside.

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The top choices here include The TJX Co. Inc. (NYSE: TJX), Ross Stores Inc. (Nasdaq: ROST), The Kroger Co. (NYSE: KR), and Lowe's Co. Inc. (NYSE: LOW).

Financial stocks will thrive in a strong-dollar environment. Investors should consider Discover Financial Services (NYSE: DFS), City National Corp. (NYSE: CYN), Capital One Financial Corp. (NYSE: COF), and PNC Financial Services Group (NYSE: PNC).

Utilities are also good strong-dollar stocks. Some good choices are Pacific Gas & Electric Co. (NYSE: PCG), Duke Energy Corp. (NYSE: DUK), Dominion Resources Inc. (NYSE: D), and The Southern Co. (NYSE: SO).

The resilience of these strong-dollar stocks is something for investors to keep in mind as the lousy earnings reports from the big multinational companies are rolling in over the next few weeks.

"We have priced in bad news of the stronger dollar, but we haven't priced in the good news of the stronger dollar," Art Hogan, chief market strategist at Wunderlich Securities, told CNBC.

The Bottom Line: While the big multinationals bemoan the impact of the strong U.S. dollar on their earnings, there's another side to this coin. Companies with a domestic business focus are thriving with a strong dollar. With this trend expected to continue at least through 2015, investors need to seek out these strong-dollar stocks.

A Double Winner: It's good to have a tailwind like a strong dollar, but it's better to have two strong tailwinds. We've found a stock that's getting a push both from the strong dollar and the low price of oil. This auto-related stock has quarterly earnings growth of 47%, a 19.5% return on equity, and a healthy balance sheet. This is a perfect storm for big profits...

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About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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