In
Part 1
of this series I discussed the rationale behind the US dollar’s recent buoyancy along with the risk and benefits of its retraction on domestic businesses. Here I will present my top picks to play the elevated risk of currency weakening.
My Crypto Play
Blockchain-powered assets like cryptocurrencies have risen out of the ashes of the Great Crypto Capitulation in 2018 and become significant elements of our advancing financial system. Regardless of personal opinions towards blockchain assets and their ambiguous nature, the trillions in funds flooding these opaque markets in the past 12 months confirm that they are here to stay.
Cryptocurrency’s like Bitcoin
BTC
have ostensibly replaced the antiquated gold trade in recent months as the prefered way to hedge against swelling inflation.
The recent adaptation to this nascent blackchain-backed asset class has inflation-fearing investors flooding into cryptos as the credibilitiy of fiat currencies (the baseless government issued money every country currently uses as a medium of exchange) is put into question. With the US dollar accounting for over 85% of Bitcoin
BTC
transactions, a depreciation of the underlying fiat exchange rate would naturally equate to the appreciation of this digital asset class (not to mention investor’s growing attraction to the future of money).
The coin that I am looking to buy on any crypto dip is Solana
SOL
, which is positioned to replace Ethereum as the most useful digital asset. Solana is functionally the same as Ethereum but supports transaction speeds over 1,000x as fast and fees that are 60,000x lower.
The digital currency market reached roughly $3 trillion in total value in mid-November 2021, and some analysts predict it could grow 10x by the end of the decade.
Net US Exporters To Buy Now
Multinational corporations with significant operations abroad have been among the most adversely impacted by the US dollar’s 7% relative appreciation over the past 7 months. Combining this with slower than expected global economic recoveries, you get the perfect storm for valuation compression in net exporters, which we are only now emerging from.
Boeing (
BA
)
has been the largest US exporter and the world’s leading aerospace company for decades but has recently fallen victim to the pandemic’s wrath. BA had already been experiencing a descent going into the pandemic following devastating system errors in its most demanded 737 Max, resulting in two fatal crashes, which grounded this aircraft from March 2019 to March 2021.
BA is now trading at less than half the market valuation it had in March of 2019 but looks ripe for a buy as orders begin flooding back in with the world economy looking towards a bountiful resurgence in the coming months. This aerospace titan is only looking up from here, and the elevated odds of a weakening US dollar make its profitability outlook that much stronger.
10 out of 13 analysts call BA a buy today with a consensus price target of $270 (35% upside).
Opportunity In Energy
The US became a net exporter of energy (oil & gas) in 2020 as fracking operations took off. US energy producers didn’t slow production nearly as much as OPEC+ when the pandemic hit, which drove up relative market share along with catalyzing the unprecedented negative price tag in April of 2020 when reserves reached a critical mass.
Energy prices have surged out of the medically induced global economic coma with a vengeance. However, the worldwide surge in Omicron-cases has the market nervous, creating a nice little trading opportunity with a weakening US dollar and soaring LNG (liquified natural gas) demands being a key catalyst.
Chevron (
CVX
)
and its best-in-class operations provide the perfect way to buy the dip in this momentum-charged sector with the highest return potential.
Chevron is an energy powerhouse with LNG operations that position it for the future of (lower emission) energy. With its savvy purchases across the Permian and Marcellus basins, the enterprise has established itself as a leader in the US oil industry (2nd largest US energy company behind ExxonMobile). I dare to call CVX an oil growth stock, but it has all the makings of a long-term winner.
Despite what oil critics say, I can assure you that the world economy is far from kicking its addiction to fossil fuels. Analysts project that natural gas and oil demand will continue to rise over the next decade with revving energy needs (LNG is expected to be a winner). CVX is poised to drive substantial profits throughout the roaring 20s.
I deem that Chevron’s 4.7% dividend yield is almost as safe as US Treasury Note. The oil industry’s commitment to maintaining its dividend regardless of financial adversity (short of bankruptcy) is unprecedented. Chevron has proven to have the liquidity to support its endlessly growing yield in even the most devastating economic environments. Chevron maintained its dividend through the past 18-months of economic shutdowns and actually raised its quarterly payout in Q2, which none of its major competitors can boast of.
The firm has already returned to pre-pandemic profitability levels, remarkably faster than most of its competitors, yet its share price remained below its pre-COVID high in January 2020. I expect that currency tailwind will further fuel CVX’s upside potential.
Sell-side analysts have been getting increasingly optimistic about CVX, with 13 out of 17 analysts calling this a buy today and a consensus price target of nearly $130 (more bullish targets above $150).
Final Thoughts
When assessing beneficiaries of a weakening domestic currency, focus on where the company in question conducts most of its business and where they source materials (if at all). Net exporters are the easiest to evaluate as clear-cut victors of a weakening dollar, assuming their primary trading partners aren’t in the same depreciating boat.
Domestic travel & leisure stocks can also benefit from a weakening currency. Foreign travelers are increasingly enticed to visit a destination as the relative exchange rate drops.
Happy Trading!
Dan
For more headline-fueled trades and insight, check out Dan’s daily market commentary in the
Headline Trader
portfolio.
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