Where To Find Profits Amid Global Currency Chaos
I make a ton of currency swaps in my line of work. It goes with the territory. But lately it’s been a harrowing experience.
Many currencies around the world have been a mess for the last few months. The value of the British pound, for example, has dropped 13% against the dollar since July 2014.
#-ad_banner-#At the same time, the Canadian dollar has plummeted 15% against its American counterpart. And the Colombian peso — another currency I’m frequently buying — is down an astounding 28% over the same period.
I’ll admit it’s been quite a hassle lately. I almost ran out of pesos in the Colombian countryside recently because of it. But what has me really worried is how these “currency wars” are starting to effect businesses and stocks valuations around the world.
Let me show you what I mean.
A few months ago, in my premium advisory Top 10 Stocks, I discussed how the massive and often-unprecedented fluctuations in currency rates have been crushing profits and lowering the valuations of many of the world’s most well-known and established companies.
I showed how over the span of a year, the U.S. dollar increased significantly against each of the five major currencies — the euro, yen, pound, Australian dollar and Canadian dollar.
Since then, the chaos has largely continued. Take a look.
What that tells me is that any companies selling products in these respective countries are currently fighting an uphill battle.
Consider the example of Philip Morris International, Inc. (NYSE: PM).
Philip Morris makes most of its revenues selling tobacco products outside the United States. These international operations were spun off from U.S. parent company Altria Group (NYSE: MO) in 2008.
This past year, Philip Morris made 31% of sales in the European Union; 34% in Eastern Europe, the Middle East, and Africa; and 26% in Asia. The company does business in currencies ranging from the euro and the Russian ruble to the Turkish lira and the Indonesian rupiah.
The problem is that Philip Morris is an American-headquartered and American-traded company. This requires the firm to translate all of its international earnings back into U.S. dollars for corporate and reporting purposes.
And that’s been presenting some challenges.
During 2014, Philip Morris saw currencies in some of its biggest markets globally take a significant dive against the dollar (including the Argentine peso, Canadian dollar, Japanese yen and several others).
That means when it brings international profits back to the States, the firm receives fewer U.S. dollars today than it did a year ago. In fact, management estimates currency fluctuations subtracted as much as $5.3 billion from the U.S. dollar-denominated bottom line in 2014.
That’s enough to make currency exchange rates now the largest item affecting the company’s bottom line. You can see this in the chart below.
The currency effects created $0.80 in net charges against Philip Morris’ per-share earnings over the past year. So with earnings coming in at $4.76 per share, that means these currency wars created a 14% reduction in the company’s profits.
But Philip Morris is not alone. In fact, any American companies generating a large portion of their profits overseas could be in store for a similar fate.
That’s why I’m looking to hedge my portfolio with companies that do the exact opposite.
You see, the easiest way I’ve found to avoid foreign currency pitfalls is to avoid foreign currency altogether. I do this by investing in companies that derive most or all of their revenues in U.S. dollars.
That’s exactly why I was so excited to come across a company that does a remarkable 80% of its sales right here in the United States.
That means that the majority of the company’s revenues and profits are being won in U.S. dollars, insulating it from the global currency wars that have been hurting other stocks over the last several months.
In fact, big fluctuations in overseas currencies helped the firm book a net $156 million gain in earnings in 2014 — a pleasant departure from the damage inflicted on other businesses by unstable currencies.
I can’t tell you the name of this company now — that’s reserved for subscribers of my premium publication Top 10 Stocks. But here’s a small peek at the strength of this company in the market. In 2014, roughly 80% of its $18.2 billion in revenues were derived in markets where the firm owns either the first or second most popular product. Talk about a competitive edge.
If you’d like to get the name of this company — and learn about several other “can’t-miss” picks, then I urge you to check out my new presentation, “The Top 10 Stocks For The Next 12 Months.”
You might not have heard of all of these companies, but I fully expect them to be household names within the next year. That’s because they all boast the key characteristics that help investors consistently beat the overall market.
To get the names and ticker symbols of these firms, please click here.