The Australian Dollar has been on a bit of a run lately, rising from around US$0.87 to now sit just below US$0.92. This is good news for importers, but bad news for companies that make the majority of their earnings overseas, particularly those that report in US dollars.
While investors shouldn't invest solely based on macro factors (including currencies, stimulus, population trends or otherwise), they can be useful for highlighting stocks that could see an unexpected boost in earnings, all else being equal.
While the Australian Dollar is soaring (relatively) at a five-month high now, some analysts expect the ongoing tapering of US fed financial support to lead to a much stronger US dollar, due to improving economic conditions and rising bond rates. Many analysts believe we can expect a prolonged period of the Australian Dollar trading between US$0.75 and US$0.85.
But what does this mean for Australian companies? Which are poised to benefit?
Companies that rely on importing goods will become less profitable, while companies that are net exporters or derive a substantial proportion of income from outside Australia will be more profitable (in Australian dollars).
Retailers like JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings Limited (ASX: HVN) sell primarily imported goods, and so margins may be impacted, while the big miners BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO), and building product suppliers such as James Hardie Industries (ASX: JHX) derive the majority of earnings in US dollars and should see a boost in earnings.
While these companies will undoubtedly benefit, there are two other companies that I believe are set for super years.
Global food, healthcare and tobacco packaging company Amcor Limited (ASX: AMC) derives over 90% of earnings from outside Australia and has delivered shareholder returns in excess of 200% since 2009. Amcor's balance sheet is healthy and it achieves margins above the median of its peers, allowing management to pursue growth opportunities and squeeze competitors. Amcor's exposure to the US healthcare and food markets will be a plus in coming years if the American economy continues to improve.
Similarly, ResMed Inc (ASX: RMD) derives around 95% of sales from outside Australia. The company develops devices to treat sleep apnea and actively increases awareness (and thus sales) about the dangers of the condition. ResMed's devices prevent vital airways from becoming blocked during sleep, possibly preventing death. The share price has underperformed of late and looks like good long-term value.
Foolish takeaway
Investors should always consider the quality of the company before considering the larger economic environment it operates in. The two companies above are high quality in their own right, and stand to benefit from economic conditions in the US which may push the Australian dollar lower over time. Both are trading at attractive prices for long-term investors.
