The dollar is on a roll, thanks to the surge in U.S. interest rates, a strong U.S. economy and the war in Ukraine.
The rise in rates helps the greenback because they make dollar-denominated fixed-income instruments more attractive. As for the economy, it has grown faster than many of its counterparts overseas, attracting foreign investors.
The Ukraine war supports the dollar because the currency is viewed as a safe haven in times of global turmoil.
The Bloomberg Dollar Spot Index has climbed 5% so far this year, which is a big number given that currencies are generally less volatile than stocks.
If you’re a stock investor, you may be wondering which stocks allow you to take advantage of the dollar’s ascent.
Bank of America has compiled a list of the S&P 500 stocks helped most by a strong dollar over the past 10 years. The bank chose companies whose stock performance has been most sensitive to dollar movements up and down.
Starting from the top performer, the list includes:
· Darden Restaurants (DRI), which owns Olive Garden and the Capital Grille. The stock is unrated by BofA.
· United Airlines (UAL). BofA rates the stock underperform.
· Conagra Brands (CAG), a food company. BofA rates the stock neutral.
· Clorox (CLX), the household cleaning products company. The stock is unrated by BofA
· Dollar Tree (DLTR), the discount retailer. BofA rates the stock underperform.
· Equity Residential (EQR), an apartment real estate investment trust (REIT). BofA rates the stock buy.
· Southwest Airlines (LUV). BofA rates the stock buy.
· Kroger (KR), the country’s biggest grocery-store chain. BofA rates the stock buy.
· FirstEnergy (FE), a utility. BofA rates the stock buy.
· Mid-America Apartment Communities (MAA), another apartment REIT. The stock is unrated by BofA.
Darden
Morningstar analyst Sean Dunlop likes the company, assigning it a narrow moat. He puts fair value for the stock at $134, up from a recent quote of $113.91.
“As Darden Restaurants emerges from the shadow of Covid-19, we expect its playbook to remain largely the same,” Dunlop said.
That means “leaning into scale-driven cost advantages, embracing datacentric decision-making, trying to attract and retain employees with a compelling culture, and providing a differentiated dining experience, consistent with management's back-to-basics strategy,” he said.
“While we view this approach as strategically sound, we expect any success at Darden to come in spite of, rather than propelled by, aggregate industry results.”
Dunlop notes that full-service restaurants posted “anemic” average annual sales growth of 1% to 2% over the past decade, well behind limited-service peers' 3% to 4% clip.
United
Morningstar analyst Burkett Huey assigns the company no moat, but puts fair value at $57, well above a recent quote of $41.13.
“United posted strong revenue growth in the first quarter and provided a bullish outlook for industrywide pricing power, which has evaded airlines for nearly the entire history of the industry,” Huey wrote in a commentary.
“We are maintaining our $57 fair value estimate, as increased yield and capacity assumptions offset the effect of increased oil prices.”
Further, “management highlighted that demand trends have improved significantly, particularly for international travel” Huey said. “United is the airline that is the most exposed to international travel.”
The author of this story owns shares of Clorox and FirstEnergy.
