You'd think that a weak dollar would be bad for American companies, but that's not always the case. A weak dollar can help companies with extensive international operations, such as Procter & Gamble (NYSE:PG) or McDonald's (NYSE:MCD), which take in a big chunk of their revenues in the form of rubles, pesos, and francs. Then, when the time comes to exchange those currencies for U.S. dollars, they'll get more dollars for the foreign currencies -- and more dollars means higher earnings. (A weak dollar means that the foreign currencies are stronger, and worth more, relatively speaking.) Warehouse retail giant Costco (NASDAQ:COST) and other companies such as Heinz (NYSE:HNZ) have previously reported strong profits thanks in part to our weak dollar.
Meanwhile, a strong dollar can cause trouble for the same types of companies with a strong base overseas. For that reason, major international enterprises typically take steps to protect themselves to some degree from currency-exchange risks. (John Reeves recently made a case for investing in Lloyds TSB (NYSE:LYG) in part because of a weak dollar.) Even so, companies such as London-based Diageo (NYSE:DEO) have reported troubles because of weak U.S. currency.
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Costco is a Motley Fool Stock Advisor recommendation. Diageo and Heinz are selections of the Motley Fool Income Investor newsletter, and Lloyds is a Motley Fool Inside Value pick.
