Despite the huge gains posted by the S&P 500 and Dow Jones Industrial average in the past 12 months, many Australians are still reluctant to invest in foreign markets.
Many perceive the foreign exchange risk as too great. Fair enough. Share markets can be daunting without adding in the complexities of foreign exchange and different time zones. If investors want to leverage gains from a lower Australian dollar then they can do so by investing in Aussie companies with exposure to overseas markets.
For safety, risk-averse investors should buy companies which are established in overseas markets, not merely expanding. There are number of stocks in the S&P/ASX 200 (ASX: XJO) (^AXJO) which derive a majority of their revenues from customers overseas, occupy strong positions in their respective industries and stand to benefit from a lower AUD. Here are some of best.
ResMed Inc (ASX: RMD) is dual-listed on both the ASX and NYSE. It manufactures and markets its innovative respiratory products worldwide. The company has an impeccable track record of growth and demand for its products is only expected to grow. It derives more than 50% of revenues from North and South America.
In 2013, BHP Billiton Limited (ASX: BHP) estimated that for every one cent drop in the Australian dollar, they derived approximately $100 million extra net profit. Everything from the price of iron ore to petroleum costs are calculated in USD. With growing production levels and lower costs, BHP deserves a spot on your watchlist.
James Hardie Industries plc (ASX: JHX) is not only leveraged to a lower Aussie dollar but the return of the US housing market. Analysts' estimations point to a very profitable year for James Hardie's operations in the US, where it derives nearly 70% of revenues. It specialises in the manufacture and distribution of fibre cement products to the construction industry.
As a major shopping-centre operator in the US, Westfield Group (ASX: WDC) will benefit from a revival in the economy and shareholders here in Australia will benefit from the lower AUD. Westfield trades on modest earnings multiples and pays out a majority of its profits in the form of a dividend. It currently yields 5%.
Foolish takeaway
Foolish investors with exposure to the US market have been handsomely rewarded in the past 24 months as its economy gains traction. Coupled with a lower Aussie dollar, the profits from these companies continue to grow. Many risk-averse investors however, who choose not to take on direct currency risks, can still take advantage of a rising US economy by investing in companies which have significant exposure to those markets.
