The dollar increased to its highest level in seven months versus a basket of currencies on Monday. Encouraging U.S. data released last week raised expectations of a Fed rate hike in December, sparking off gains. Additionally, a substantial increase in U.S. yields added further impetus to the greenback’s ascent.
Companies which primarily conduct their business within the U.S. are expected to gain from the dollar’s surge. An improving economy will also give such stocks an added impetus. Adding these stocks to your portfolio makes good sense at this time.
Upbeat Economic Data Boosts Dollar
The dollar index (DXY) rose to its highest level since Mar 10 on Sunday before ending 0.1% higher at 98.095. Gains were primarily attributable to encouraging data about the U.S. economy released recently. Meanwhile, retail sales rebounded in September, increasing by 0.6% last month after declining slightly in August. Higher auto sales and rising oil prices fueled the increase in retail sales.
The increase in retail sales was the highest recorded for the last three months. Additionally, the producer price index or PPI increased by 0.3% in September. This was also attributable to a rise in costs of all kinds of fuels. Also, core PPI, which excludes food energy and trade services, registered a year-over-year increase of 1.5%.
Yield Surges, Rate Hike Chances Remain Strong
Another reason for the dollar’s rise was a surge in 10-year and 30-year Treasury yields. Yields rose to their highest levels in four months following comments made by Fed Chair in Janet Yellen in Boston. Addressing prominent academics and policymakers the Fed Chair said that there may be some merit in “running a high pressure economy” on a temporary basis in order to fully recover from the effects of the last recession.
Such a statement led to speculation that the Fed may refrain from raising rates in the near future, which fueled the rise in yields. However, market watchers were of the opinion that Yellen’s comments will not constrain the Fed from raising rates this year. Apart from retail sales and PPI, other domestic economic indicators have also been encouraging. The ISM manufacturing index for September increased while the ISM services gauge touched an 11-month high. Going by Fed fund futures, the probability of a rate hike by the Fed’s December meeting has risen from the month ago level of 52% to 66%.
Despite the Fed Chair’s recent comments, bullish economic data has given the Fed the evidence it needs bring about a rate hike by December. The dollar is expected to rise further in this case. In such an event, companies which conduct all their business within the U.S. are likely to be in an advantageous position compared to those with substantial overseas operations.
Domestically focused companies are likely to gain further with an uptick in GDP. This is why it may be a good idea to pick such stocks. At the same time, selecting winning stocks is a difficult task.
Adding select manufacturing stocks seems to be a good option at this point. However, picking winning stocks may prove to be difficult.
This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.
Sanderson Farms, Inc. SAFM is a fully-integrated poultry processing company engaged in the production, processing, marketing and distribution of fresh and frozen chicken products in the U.S.
Sanderson Farms has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. Its earnings estimate for the current year has improved by 3.1% over the last 30 days. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 12.58, lower than the industry average of 13.51.
Tenet Healthcare Corp. THC is an investor-owned health care services company, which owns and operates general hospitals and related health care facilities for urban and rural communities in numerous states across the U.S.
Tenet Healthcare has a Zacks Rank #2 (Buy) and a VGM Score of A. Its earnings estimate for the current year has improved by 0.5% over the last 30 days. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 14.48, lower than the industry average of 16.52.
DTE Energy Company DTE is a holding company with subsidiaries engaged in regulated and unregulated energy businesses in the U.S.
DTE Energy has a VGM Score of B. The company has expected earnings growth of 8% for the current year. Its earnings estimate for the current year has improved by 2.9% over the last 30 days. The stock has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Del Taco Restaurants, Inc. TACO is the second largest Mexican-American QSR chain in terms of units in the U.S., serving more than 3 million guests each week.
Del Taco has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 15.8% for the current year.
SkyWest Inc. SKYW is one of the larger regional airlines in the U.S.
SkyWest has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 33.8% for the current year.
Looking for Ideas with Even Greater Upside?
Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more. Click here for a peek at this private information>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Zacks Investment Research