When a currency is falling, investors should start looking for blue chip bargains from that country.
That is why Warren Buffett recently bought more shares of Canadian energy firm Suncor (NYSE: SU) as he was selling off millions of shares of ExxonMobil (NYSE: XOM) and ConocoPhillips (NYSE: COP), which are both headquartered in America.
The Canadian dollar is down due to the plunge in the price of natural resources, resulting in assets priced in the loonie now selling at a discount.
The same is true for many German stocks due to the fall in the euro. These companies include SAP SE (NYSE: SAP), a software company; Siemens AG (OTC: SIEGY), a global technology company; Daimler AG (OTC: DDIAF), the maker of Mercedes-Benz and other automobiles; and Volkswagen AG (OTC: VLKAY), which competes yearly with Toyota Motors (NYSE: TM) for the title of the world’s biggest motor vehicle company.
Utilizing the euro as its currency is a huge advantage for German companies, and also for savvy investors.
That is particularly true for those living in countries whose currencies are faring well against the euro. This is presently the case with the U.S. dollar and American investors. And many economists expect the euro to fall even more against the greenback, as Europe’s recovery from the Great Recession has not been as robust as America’s.
A weak euro fortifies German companies in a variety of ways. When the domestic currency is weak, exports trade at a discount against stronger monetary units. As a result, goods priced in euros now are much more attractive in the United States due to its decline against the dollar.
PowerShares DB US Dollar Bullish (NYSE: UUP), a major exchange traded fund for the U.S. dollar, is up about 22% over the last year of market action. Currency Shares Euro (NYSE: FXE), a major ETF for the euro, has dropped around 23% for that same time period.
That is a huge advantage for major German exporters, such as Siemens, Volkswagen and Daimler.
Volkswagen has operations in approximately 150 nations. Motor vehicles from Daimler, such as the Mercedes-Benz, set the standard for luxury around the world. The sun never sets on the Siemens corporate empire as it has, according to its website, “office buildings, warehouses, research and development facilities or sales offices in almost every country in the world.”
Germany exports almost as much as the United States, based on the value of goods. If the euro collapsed and Germany went back to its own currency, its exporters would lose a tremendous currency advantage. The value of a German currency unit would be much higher than one for the entire European Union, resulting in higher prices for exports.
For that reason, German officials will do everything they can to protect the euro. Therefore, investors should take advantage of a weak euro to pick up German stocks with a strong global presence, such as Siemens and Volkswagen, among many others.
Jonathan Yates does not have a position in any of the securities mentioned in this article.
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