If the Australian dollar continues to fall against the US dollar, you might want to start thinking about exposure to the USD. Here’s why I think it’s worth looking at shares of CSL Limited (ASX: CSL), Cochlear Limited (ASX: COH) and Altium Limited (ASX: ALU).
Why USD Exposure?
Gaining exposure to the US dollar can have several benefits for Australian investors. First of all, having some USD exposure is a form of diversification. Remember, diversification doesn’t just mean companies in different industries. It also means other asset classes and global companies with exposure to different currencies.
Second, companies with exposure to the USD can benefit from a weaker Australian dollar. Over the last year, the Australian dollar has gone from being worth 72 US cents to just 67 US cents, a decline of nearly 7%.
For companies that earn revenue in USD, this means that they are now earning greater revenue in Australian dollar terms. In other words, the same amount of revenue in US dollars is now worth a greater amount in Australian dollars.
A weaker Australian dollar will directly impact the results of companies that report in USD, like two of the companies below. A weaker Australian dollar can also increase dividends paid in AUD.
So, here are three examples of companies with USD exposure…
1. CSL Limited
CSL is Australia’s largest (and some might say best) healthcare company, specialising in biopharmaceuticals. Founded in the late 1900s as the Commonwealth Serum Laboratories, CSL was sold by the Australian Government to Australian investors via the share market in 1994 at $2.30 per share, at which time it doubled its size through an international acquisition. Today, CSL is a global leader in blood plasma vaccines (think: the flu) and antivenoms, providing relief for potentially life-threatening medical conditions.
Besides benefitting from a weaker Australian dollar, I also believe CSL is one of the best companies on the ASX because of its long-term track record and sustainable competitive advantage. However, the current share price is close to its 52-week high and is arguably overvalued. I’m not a buyer at today’s price, but CSL is certainly worth adding to the watchlist.
2. Cochlear Limited
Cochlear is one of the world’s leading medical businesses. Cochlear designs, manufactures and supplies the Nucleus cochlear implant, the Hybrid electro-acoustic implant and the Baha bone conduction implant. Graeme Clark invented the first device in 1982, allowing first-user Graham Carrick to hear for the first time for 17 years. Some of the most recent modifications allow users to play sound from their phone directly into their implant.
Cochlear is another high-quality company with a competitive advantage, making some of the most advanced implants in the world. This competitive advantage has helped to drive the share price more than 200% higher over the last five years.
This article I’ve previously written digs deeper into some of the positives of Cochlear, as well as its valuation.
3. Altium Limited
Altium is an Australian multinational software business that was founded in 1985. It now has offices globally in places like San Diego, New York, Boston, Munich, Shanghai, Tokyo and Sydney. Its software focuses on electronics design systems for 3D PCB design and embedded system development. Its services include Altium Designer, Altium Vault, CircuitStudio, CircuitMaker, TASKING and Octopart.
Of the companies on this list, Altium could be most accurately described as a growth company. Up more than 1,000% over the last five years, Altium shares have rewarded long-term investors and its recent FY19 report seems to suggest that, if anything, the growth rate is increasing with revenue up another 23% in the year.
A Word Of Warning
While these three companies could all benefit from a weaker Australian dollar, they could all be negatively impacted by a stronger dollar. Australia has been cutting interest rates, but the US has recently started doing the same. If the US continues to do so, we could see the Australian dollar strengthen.
As always, this is why diversification remains vitally important.
For more growth ideas, check out the free report below.
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Disclosure: At the time of publishing, Max does not have a financial interest in any of the companies mentioned.
