It seems like every day that a different economist or analyst announces their belief that the Australian dollar will drop to around 80 cents at some stage in 2014. The dollar is currently trading at around 90 US cents, so a drop to 80 cents could mean an earnings boost of over 10% for companies that earn the majority of revenue in US dollars.
Of course, all Foolish investors will know that just because a company generates revenue in US dollars doesn't necessarily mean it will do well with a lower Australian dollar. The company must also have quality management, a solid underlying business model, and a favourable business outlook.
10 of the best
Three big medical companies listed on the ASX actually report their financial results in US dollars, meaning that any change in the exchange rate will directly impact their results. The three companies; Cochlear Limited (ASX: COH), CSL Limited (ASX: CSL), and ResMed (ASX: RMD) all service very different markets, but have established client bases and will benefit from the ageing population in developed countries. As well as offering exposure to the growing wealth of developing nations.
Four materials companies also make the list. BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO), Fortescue Metals Group Limited (ASX: FMG) and Woodside Petroleum Limited (ASX: WPL) all report their earnings in US dollars. They are exposed to the growing Chinese economy, which in turn is leveraged to the improving economies in Europe and the US. All four have taken steps to consolidate their portfolios and reduce debt, in order to improve returns for shareholders following a 10-year capital expenditure boom. By selling non-core assets and reducing capital expenditure, the four companies are all ensuring their long-term future is bright. Shareholders should also be rewarded by larger dividend payouts in the short term.
The final three companies fall into similar industries. Amcor Limited (ASX: AMC), Brambles Limited (ASX: BXB) and James Hardie Industries plc (ASX: JHX) offer an investor exposure to the growing pallets, packaging and building material markets in the US, Europe and Asia. Brambles supplies reusable pallets, crates, and containers to customers in the US and Europe, while Amcor manufactures packaging products for overseas markets. James Hardie produces fibre cement products for the commercial and residential property markets globally. The three companies operate in challenging industries but command dominant and (generally) growing market shares to underscore their success going forward.
Foolish takeaway
The ten companies above represent not only companies expected to benefit from a falling Australian dollar, but they are also quality companies with good management teams in growing industries. While investors should not make decisions solely based on the global environment, noting the currency and source of earnings is an important part of researching risks and opportunities for a company. A lower Australian dollar represents an opportunity for higher earnings for the companies above.
