The Australian dollar has fallen 7% in 2018 to 72.60 U.S. cents against a background of rising American interest rates trying to cool a surging economy. With more rate hikes from the Federal Reserve expected to occur over the next couple of years, investors could see further weakness in the Australian dollar.
A falling Australian dollar does present an opportunity for Australian based investors to profit by investing in American equities directly, or alternatively in ASX listed companies that generate a significant amount of earnings in the United States.
A lower Australian dollar makes the offshore earnings of Australian companies more valuable when they are converted back into the local currency. With that in mind, here are 3 growth stocks that would benefit from a declining Australian dollar.
Appen Ltd (ASX: APX)
Appen develops high-quality human annotated datasets that are used for machine learning and artificial intelligence. Around 88% of Appen's revenue was derived in the United States for the first half of FY18. The company has guided for full-year underlying EBITDA to be in the range of $54 million to $59 million at an AUD/USD exchange rate of 80 cents. Appen is projected to grow earnings in FY19 by 30% and following the recent sell-off is currently trading at 31 times FY19 earnings.
Aristocrat Leisure Limited (ASX: ALL)
Aristocrat is expected to see an increase in U.S. earnings following the purchases of Big Fish Games and Plarium as it grows its presence in the mobile gaming space. The acquisitions are boosting the company's recurring earnings and reduce the volatility of the poker machine replacement cycle's impact on overall earnings. Approximately two-thirds of Aristocrat's earnings are derived in the U.S. The company is projected to grow earnings by 19% to $1.40 per share in FY19, which prices the stock at a reasonable forward valuation multiple of 20.
ResMed Inc (ASX: RMD)
Sleep treatment specialist ResMed (listed as RESMED/IDR UNRESTR on Google Finance) is the market leader in its industry. The company posted another solid quarterly in August with revenue up 12% to US$624 million and Non-Gaap diluted earnings per share growing 23% to US$0.95. Shareholders of the Australian listed scrip stand to benefit from a lower Australian currency as ResMed's ASX listing represents a 1/10th interest in the NYSE scrip. Consensus estimates are forecasting ResMed to grow earnings by 5% in FY19 to US$3.69 per share, which prices the stock on a multiple of 31 at current prices.
