Surging Dollar To Hurt US Exports: 5 Top Domestic Picks

The U.S. dollar is currently hovering around a 16-month high. A robust U.S. economy has compelled the Fed to pursue a gradual rate hike policy with the strong likelihood of a fourth rise this year in December. At the same time, U.S. products are losing competitiveness in the international market due to strong dollar.

Moreover, plummeting crude oil prices and concerns about emerging markets’ ability to service their external debt have raised the possibility of global slowdown. Consequently, it will be prudent to invest in domestic business-focused stocks with a favorable Zacks Rank.

US Dollar Index Hits 16-Month High

On Nov 12, the ICE (NYSE:ICE) U.S. Dollar Index (DXY), which measures the greenback’s strength against a basket of six major currencies, touched 97.28, its highest level since Jun 23, 2017. Demand for the dollar intensified after the Fed signaled a possible rate hike in December and again in early 2019, last week. Moreover, geopolitical conflicts in the U.K. and Italy resulted in lowered values of Pound and Euro compared with the U.S. dollar.

Crude Oil Price Plunges

On Nov 8, the U.S. benchmark West Texas Intermediate (WTI) crude oil future price entered in bear market territory. On Nov 13, international benchmark of Brent crude oil also entered in the bear market. Notably, both benchmarks are currently on bear market territory.

Recent nosedive of crude prices has raised eyebrows about an impending global economic slowdown. A surge in global oil supply and significantly weak global demand for oil are the primary reasons behind oil price plunge. High dollar price also inflated oil prices resulting in weak demand. Crude oil is priced in the U.S. dollar term in the international markets.

Concerns Relating to Emerging Markets

Emerging markets are characterized as major borrower of international debts (external commercial borrowing). Since the debts have to be repaid in dollar terms, servicing these debts while managing fiscal discipline will be very difficult for these countries. Moreover, refinancing of debts which are on the verge of maturity will also become problematic owing to soaring interest costs.

These negatives may lead to economic slowdown in emerging markets leading toward global economic slump. Emerging markets contagions will certainly create disturbances in the U.S. stock Markets.

Why Domestic Stocks?

Investors are concerned that a rising dollar will hurt sales of U.S. multinational companies as their products will be more expensive in the international markets. Notably, in 2017, S&P 500 companies had derived 43.6% of their total revenues from international markets.

Domestic business oriented companies are mostly immune to any external shocks since the United States is the lone market of their products. This will help them to outperform the broader market defying extreme volatility.

Our Top Picks

At this juncture, investment in domestic business-focused stocks will be fruitful. We have narrowed down our search to five such stocks each having a Zacks Rank #1 (Strong Buy) and strong growth potential. You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows price performance of our five picks year to date.

United States Cellular Corp. (NYSE:USM) is the eighth largest wireless company in the United States based on the aggregate number of customers in its consolidated markets. The company has expected earnings growth of 179.3% for current year. The Zacks Consensus Estimate for the current year has improved by 45.9% over the last 30 days.

Middlesex Water Co. (NASDAQ:MSEX) treats, stores and distributes water for residential, commercial, industrial and fire prevention purposes. The company has expected earnings growth of 42% for current year. The Zacks Consensus Estimate for the current year has improved by 6.5% over the last 30 days.

Molina Healthcare Inc. (NYSE:MOH) provides Medicaid-related solutions to meet the health care needs of low-income families and individuals, and to assist state agencies in their administration of the Medicaid program in the United States. The company has expected earnings growth of 1,291.1% for current year. The Zacks Consensus Estimate for the current year has improved by 18.5% over the last 30 days.

Bank of Commerce Holdings (NASDAQ:BOCH) provides a range of financial services and products for retail customers and small to medium sized businesses in California. The company has expected earnings growth of 42.2% for current year. The Zacks Consensus Estimate for the current year has improved by 18.5% over the last 30 days.

1st Constitution Bancorp (NASDAQ:FCCY) is one of New Jersey's few independent community banks. The company has expected earnings growth of 50% for current year. The Zacks Consensus Estimate for the current year has improved by 8.9% over the last 30 days.

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