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 Disaster" and "Dollar Resumes Its 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:
Market Cap, Billion
Revenue (TTM), Billion
% Revenue Ex-U.S.
Philip Morris International
Source: Capital IQ, a division of Standard & Poor's. *Ex-North America
None of those is a surprise, really. Yum! Brands is growing quickly in China, pharmaceutical companies sell their drugs all over the world, and Coke is just about the biggest brand on the planet. Even Google generates more of its ad revenue outside these shores. And they could all be big investment opportunities, given the right conditions.
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 International. It has the leading market share, the No. 1 brand, and pays a very respectable dividend of 4.4%.
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. At the Motley Fool's Million Dollar Portfolio, Tim Hanson brings his international expertise (he's co-advisor of the Motley Fool Global Gains newsletter) to the team, helping the real-money portfolio diversify into international companies. If you'd like to receive more information about how international companies play a role in this diversified portfolio, just enter your email address in the box below.
This article was originally published on Nov. 30, 2009. It has been updated.
Fool analyst Jim Mueller owns shares of Philip Morris and Coke, and has a bull call spread on Yum! Brands, but has no interest in any other company mentioned in this article. Google, Coca-Cola, and Pfizer are Inside Value picks. Google is a Rule Breakers choice. NVIDIA is a Stock Advisor selection. Philip Morris is a Global Gains recommendation. Coca-Cola is an Income Investor recommendation. The Fool owns shares of Coca-Cola, Google, Philip Morris, Qualcomm, and Yum! Brands.
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