How to Get a Lift from a Falling Dollar
Shares of some big exporters have benefited from the greenback's woes--and their prospects still look rosy
By Michael Sivy

(MONEY Magazine) – The dollar has been in a slide for the past three years, and that's generally a good thing for the earnings of big U.S. companies; our products are cheaper for foreigners whose currencies are rising relative to the dollar. That doesn't mean, however, that you should base your investing strategy solely on currency trends. They're too uncertain, especially in the short term.

It's true that a falling dollar is a fine reason to invest some money overseas, as "There Goes the Dollar," on page 59, explains. But when you're considering U.S. stocks, it's better to look for successful businesses that will get an extra lift from a weak buck. A company is likely to benefit if it has at least one of these three characteristics:

1. IT MAKES A LOT OF SALES ABROAD Multinationals often do 40% or more of their business outside the U.S.

2. IT SELLS BIG-TICKET ITEMS When a buyer can lock in a sizable order, a weak-dollar discount is especially appealing.

3. ITS COMPETITORS ARE OVERSEAS Companies whose chief rivals are in countries with strong currencies get the most pricing help.

Here are three companies that should profit from a continued cheap dollar. All have done quite well over the past few years, but they seem to me to have room for further gains based on how strong their businesses are.

Boeing (BA, $82; P/E 18.4) Besides being one of the world's leading producers of commercial aircraft, Boeing is the No. 2 U.S. defense contractor. With military spending booming, Boeing's stock has more than doubled over the past three years. Additional share-price increases will depend on how well Boeing competes in commercial aircraft, particularly in competition with chief rival, Airbus (which makes its planes mostly in countries that use the euro). Boeing sold a stunning 1,002 commercial planes in 2005 compared with 272 in 2004. The company has made a big bet on its new mid-size, long-range 787, which raises fuel efficiency through greater use of composites in place of aluminum. That decision now appears brilliant, as demand for mid-size planes is soaring because more airlines are moving into secondary markets. Airbus, by contrast, followed a traditional strategy, cutting fuel consumption per passenger by designing the world's largest commercial airliner. If Boeing's new plane runs into trouble, the stock could be vulnerable given its relatively high P/E. But if the plane is a hit, Boeing could dominate the market for five years. The 787 is scheduled to make its debut in 2008 and is already sold out through 2011.

Caterpillar (CAT, $74; P/E 12.4) A weak dollar helps Caterpillar because its chief competitor is Japan's Komatsu--and the yen is up 5% against the dollar this year. In addition, the earth-moving-equipment company's sales are benefiting from the current commodities boom. Countries that are flush with profits from oil, gold, copper and the like need to spend on construction equipment to improve their oilfields or mines. They also have the cash to fund big infrastructure projects. In fact, Cat now makes half its sales outside the U.S. Earnings climbed 48% in the first quarter, beating analysts' expectations. As with many cyclical companies, Cat's profits can swing up rapidly when business is good. That's why even though the share price has tripled over the past three years, the stock still trades at a below-market P/E.

3M (MMM, $84; P/E 16.2 ) More than a century old, 3M is still young at heart--and imaginative. The maker of Scotch tape is coming up with dozens of variations on its popular Post-It notes, including children's sketch pads and photo paper. Altogether, 3M is involved with more than 30 different technologies, from Thinsulate to computer touchscreens. In addition, CEO George Buckley is acquiring small and mid-size health-care and technology businesses that complement existing product lines.

Although 3M is based in America's heartland, the Minnesota giant thinks globally. More than 60% of sales come from foreign countries. And 3M plans to raise that to 70% by 2011, chiefly by expanding in Brazil, China, India, Poland and Russia, all of which are growing faster than the U.S. Profits, which rose more than 20% in the first quarter, are expected to increase at a double-digit rate over the next five years. The stock also pays an attractive 2.2% dividend.

Read editor-at-large Michael Sivy online every Tuesday at cnnmoney.com/sivy. E-mail him at msivy@moneymail.com.

IT'S GOOD TO BE GLOBAL

Strong overseas sales and a weak buck have buoyed Boeing, Caterpillar and 3M.

GAIN OR LOSS SINCE JANUARY 2003

CATERPILLAR +222%

BOEING +150%

3M +36%

U.S. DOLLAR -17%

NOTES: Monthly data as of May 24. Dollar is compared with weighted average of the currencies of six major trading partners.

SOURCE: Thomson/Baseline.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.