My colleagues Tim Hanson and Brian Richards have done their best to scare you about a falling dollar. And with the articles behind headlines like "Get Out Now!" and "Read This Because the Dollar Is Doomed," they've made their point.
Of course, with other headlines in the financial press -- like "Dollar on Weak Footing" and "U.S. Dollar's Queasy Slide" -- it's no wonder people are concerned. That anxiety ramps up even further when you consider that the U.S. government has been printing greenbacks at a tremendous rate, both to bail out otherwise worthless companies, and to stimulate the economy. That's got to be inflationary at some point.
Supporting this, luminaries such as bond master Bill Gross, Swiss banker Konrad Hummler, and commodities expert Jim Rogers have all expressed concern about the dollar.
Cue the infomercials
In reaction, many would have you invest in gold, which has of course racked up huge price gains. After all, gold is supposedly "safe." But when you see ads on TV urging you to convert your jewelry and other sources of gold -- Dental fillings? Really? -- into cash, doesn't that point to a possible bubble in gold prices? I mean, aren't those ever-present ads similar to all those shows on how to buy and flip houses during the inflating of the real estate bubble?
Yes, gold is considered safe, but is buying into a frothy gold market really the best way to protect your dollars? After all, gold doesn't grow earnings, or pay you a dividend while owning it.
There are other ways to protect your portfolio against a falling dollar -- ways that need not be driven by fear. Unless you want to get into the intricacies of foreign exchange trading, the answer is pretty simple. Invest in companies that generate a large part of their revenue abroad. As the dollar falls, those foreign revenues are converted into more dollars. Your investment will grow from both increasing sales and higher conversion rates.
A better hedge
Consider the following companies, each of which generates at least half of its revenue outside of the United States:
|
Company
|
Market Cap, Billion
|
Revenue (TTM), Billion
|
% Revenue Ex-U.S.
|
|
Philip Morris International
|
$94.9
|
$25.0
|
100.0%
|
|
Siemens (NYSE: SI )
|
$73.2
|
$106.6
|
79.2%
|
|
Corning (NYSE: GLW )
|
$27.3
|
$5.4
|
73.3%
|
|
Unilever (NYSE: UL )
|
$84.2
|
$57.1
|
67.7%
|
|
Canadian National Railway (NYSE: CNI )
|
$24.8
|
$7.0
|
67.5%
|
|
McDonald's (NYSE: MCD )
|
$70.4
|
$22.7
|
65.1%
|
|
Smith International (NYSE: SII )
|
$10.1
|
$8.2
|
59.6%
|
|
BP (NYSE: BP )
|
$162.1
|
$239.3
|
63.5%
|
Source: Capital IQ, a division of Standard & Poor's.
None of those are surprises, really. Unilever is a big consumer goods producer in Europe, while McDonald's sells Big Macs all over the world, with almost half of its revenue coming from Europe. And of course, BP sells gasoline and oil all over the planet.
But the one company on that list that I believe would do the best at hedging your dollar risk doesn't bring in a penny here in the states: Philip Morris. It has the leading market share, the No. 1 brand, and it pays a very respectable dividend of 4.7%.
Sure, gold can be used to preserve your dollars, but only if you get in at the right point. Right now, however, I'd be worried about buying too high, especially given the speed of its rise in price. Investing in a company with a majority of its revenue and earnings abroad, however, also protects you against a falling dollar.
In addition, you'll have the opportunity to participate in its further growth, and you often get a dividend to boot. That's better than gold, in my mind; other than relying on nervous people to bid up its price, the shiny yellow stuff doesn't do much to grow its value.
Of course, Philip Morris might not be your cup of tea. That's OK. There are plenty of other internationally focused companies growing earnings and value. Each month, Motley Fool Global Gains brings you two of them. If you're serious about divesting away from the risk of being all-in with the dollar, and looking for something other than gold, consider a free 30-day trial. There's no obligation, and you get to see the team's best stock ideas. Simply click here to read all about them.
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This article was originally published on Nov. 30, 2009. It has been updated.
Jim Mueller owns shares of Philip Morris, but no other company mentioned in this article. Canadian National Railway is a Motley Fool Stock Advisor selection. Philip Morris and Unilever are Global Gains recommendations. Unilever is also an Income Investor pick. Fool's disclosure policy may glitter like gold on the surface, but underneath, it's pure platinum.
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