Buy Strong Brands Being Hit by the Stronger Dollar

One trend this earnings season has been a number of companies impacted by the strength of the US dollar in currency markets. As a result, multinational companies are reporting headwinds, as a strong dollar makes them relatively more expensive in local markets.

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  • That trend will end in time, and may even shift quickly once monetary policy stops tightening. As the trend reverses, companies that have been adversely impacted will suddenly benefit.

    Among multinational companies holding up strong right now is Mondelez International (MDLZ). The maker of Oreo cookies and other snack brands is likely about to see the dollar impact earnings when it reports next week.

    However, the consumer brand giant has held up well so far, with shares down just 2 percent over the past year. And revenue is up 10 percent, as the company has been able to pass on higher costs to customers.

    Action to take: The stock trades at 19 times forward earnings, the lower end of its value range over the past two years. Shares yield 2.6 percent here, thanks to the recently-raised dividend. Long-term investors looking for a defensive stock that can fare well as the dollar weakens should fare well here.

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  • For traders, the March 2023 $60 calls, last going for about $4.10, offer mid-double-digit upside in the coming months. Traders may want to wait to buy on a down day, or after earnings, as the company will finally provide details on how the strong dollar has impacted earnings.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.