How to play with a weakening US dollar: my top picks for 2022 (part 2)
In Part 1 of this series, I discussed the rationale for the recent strength of the US dollar and the risks and rewards of its retraction on domestic companies. Here I will present my top picks for playing the high risk of currency weakening.
My crypto game
Blockchain-powered assets, such as cryptocurrencies, grew out of the ashes of the crypto’s great surrender in 2018 and have become important parts of our growing financial system. Regardless of personal opinions on blockchain assets and their ambiguous nature, the trillions of funds that have flooded these dark markets over the past 12 months confirm that they are here to stay.
Cryptocurrencies like Bitcoin BTC have ostensibly replaced archaic gold trading in recent months as the preferred way to hedge against rising inflation.
The recent adaptation to this nascent black chain-backed asset class has inundated investors fearing inflation in cryptos as the credibility of fiat currencies (the baseless government-issued money that each country currently uses as medium of exchange) is called into question. With the US dollar accounting for over 85% of Bitcoin BTC transactions, a depreciation in the underlying fiat exchange rate would naturally equate to the appreciation of this digital asset class (not to mention the growing attractiveness of investors for the future. money).
The coin I’m 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 identical to Ethereum, but supports transaction speeds over 1,000 times faster and fees 60,000 times lower.
The digital currency market reached around $ 3 trillion in total value by mid-November 2021, and some analysts predict it could grow 10-fold by the end of the decade.
US Net Exporters To Buy Now
Multinational companies with large overseas operations have been among the hardest hit by the 7% relative appreciation of the US dollar over the past 7 months. Combining this with slower-than-expected global economic recoveries, you have the perfect storm for squeezing net exporter valuations, which we are only now emerging from.
Boeing (BA) is the largest U.S. exporter and the world’s largest aerospace company for decades, but has recently fallen victim to the wrath of the pandemic. BA had already experienced a descent into the pandemic following devastating system errors in its most requested 737 Max, resulting in two fatal crashes, which brought the plane to a standstill from March 2019 to March 2021.
BA is now trading at less than half of the market valuation it had in March 2019, but looks ripe for a buy as orders begin to pour in as the global economy sees a bountiful resurgence in the coming months. This aerospace titan is only looking from here, and the high odds of a weakening US dollar make his profit outlook even more solid.
10 out of 13 analysts are calling BA a buy today with a consensus price target of $ 270 (35% increase).
Opportunity in energy
The United States became a net exporter of energy (oil and gas) in 2020 as hydraulic fracturing operations took off. U.S. power producers did not slow down production as much as OPEC + when the pandemic hit, pushing up relative market share while catalyzing the unprecedented negative price in April 2020 when reserves hit. critical mass.
Energy prices have emerged from the medical-induced global economic coma with a vengeance. However, the global increase in Omicron cases is making the market nervous, creating a nice little business opportunity with a weakening US dollar and skyrocketing demand for LNG (liquefied natural gas) is a key catalyst.
Chevron (CVX) and its blue chip trades are the perfect way to buy the downside in this dynamic sector with the highest return potential.
Chevron is a powerhouse with LNG operations that position it for the future of energy (low emissions). Thanks to its wise purchases in the Permian and Marcellus basins, the company has established itself as a leader in the American oil industry (2nd American energy company behind ExxonMobile). I dare call CLC 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 global economy is far from shedding its dependence on fossil fuels. Analysts predict that demand for natural gas and oil will continue to increase over the next decade with increasing energy needs (LNG is expected to be a winner). CVX is poised to generate substantial profits throughout the Roaring Twenties.
I think Chevron’s 4.7% dividend yield is almost as secure as the US Treasury bill. The oil industry’s commitment to maintaining its dividend regardless of financial adversity (barring bankruptcy) is unprecedented. Chevron has proven that it has the cash flow to support its ever-growing performance, even in the most devastating economic environments. Chevron has maintained its dividend over the past 18 months of economic shutdowns and has actually increased its quarterly payout in the second quarter, something none of its major competitors can brag about.
The company has already returned to pre-pandemic profitability levels, remarkably faster than most of its competitors, but its share price has remained below its pre-COVID high in January 2020. I expect that the tailwind of the currency further feeds the upside potential of CLC.
Sell-side analysts are increasingly bullish on CVX, with 13 out of 17 analysts calling it a buy today and a consensus price target of nearly $ 130 (more bullish targets above $ 150).
When assessing the beneficiaries of a weakening national currency, focus on where the business in question conducts most of its business and where it sources materials (if any). Net exporters are easiest to assess as the net winners of a weakening dollar, assuming their major trading partners are not in the same depreciating boat.
Domestic travel and leisure stocks may also benefit from a weaker currency. Foreign travelers have a growing incentive to visit a destination as the relative exchange rate declines.
Have a good negotiation!
For more news and headline-fueled trading, check out Dan’s Daily Market Commentary in the Headline Trader Portfolio.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.