Commentary > Sivy on Stocks
The dollar makes Harley go vroom
Motorcycle maker Harley-Davidson is enjoying strong sales overseas, thanks to the cheap U.S. dollar.
February 26, 2004: 6:07 PM EST
By Michael Sivy, CNN/Money contributing columnist

NEW YORK (CNN/Money) - If you've traveled to Europe recently, or have even considered a trip, you probably know just how big the impact of the depressed dollar has been.

When I visited Paris a few years ago, the euro was down to 85 cents. Clothes were so cheap that I just threw out a lot of the things I had brought and replaced them with nicer stuff at Bon Marchť, the Paris equivalent of Saks.

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But when I went back to Paris last October, the euro was up to $1.15, and to economize I tried to buy as little as possible and ended up staying at a hotel in a commercial neighborhood -- the hotel was nice enough but I did have to pass a couple of adult theaters to get to it.

Since then, the dollar has dropped ever further against the euro.

Currency exchange rates have equally great impact on stock prices. Figuring out what the effects will be, however, can get quite complicated.

If a company produces goods in the U.S. and sells them overseas, it benefits from a cheap dollar, because its products become less expensive for foreign buyers. Sales generally get a boost as a result.

This benefit, however, can be offset for many reasons, especially if the company owns factories or other assets in foreign countries. In that case, labor costs and other expenses in foreign factories may rise in U.S. dollar terms. Or the company may be affected by changes in the dollar-value of foreign property, plant and equipment or investments denominated in foreign currencies.

Harley-Davidson isn't affected much by those factors. The company makes classic American motorcycles in this country and sells some of them in Europe and Japan. The U.S. dollar is down so much against the euro and the yen that Harley's motorcycles look relatively cheap to foreign buyers. And not surprisingly, sales are up significantly in both those markets.

Moreover, Harley (HDI: Research, Estimates) qualifies for my list of 70 long-term growth stocks even without the current boost from foreign sales. Earnings are projected to grow at a 16 percent to 17 percent compound annual rate over the next five years. At just over $53 a share, the stock trades at less than 20 times estimated 2004 earnings.

Although today's unusually cheap dollar is giving sales an extra boost, Harley has a long history of success in all kinds of markets. The company has just celebrated its 100th anniversary. And Harley's most recent earnings report -- a 31 percent gain in profit from 2002 to 2003, on a 13 percent rise in sales -- represents the company's 18th straight annual increase in both revenues and earnings.

Michael Sivy is an editor-at-large for MONEY magazine. Sign up for free e-mail delivery every Tuesday and Thursday of Sivy on Stocks.  Top of page

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