Aussie dollar easing the squeeze

Down DollarThe Australian dollar has fallen below $0.98  against the USD overnight. The Aussie is now down 8.4% in 3 months bringing welcome relief to Australian manufacturers, farmers and Wayne Swan amongst others. The currency has fallen from $1.07 to $0.97 over that 3 months. Curiously, the scale of this fall has attracted little attention, being overshadowed by the budget and other domestic scandals.

An analysis of stocks with exposure to the appreciating US dollar shows startling results. While the ASX 200 is down over 2% in that time, health care stocks CSL and Resmed have returned 19% and 16% respectively. Pathology stock Sonic Healthcare has delivered a 10% gain. Other US dollar exposed stocks include QBE, Westfield Group, News Corporation, Computershare, James Hardie, Brambles, UGL and Sims Metal  which have delivered mixed returns despite the dollar weakness. Westfield, News and Computershare have delivered positive returns of 6%, 5% and 2% respectively while Brambles, UGL and Sims Metal have fallen  1%,  6%  and  15% respectively.

There are clearly one off factors amongst these stocks (such as the recent QBE capital raising and Brambles European exposure) but the bottom line is that the health stocks have correctly read the script and responded very positively to the lower dollar. The others have missed the tidal change.

Quest portfolios are invested in both CSL and  Resmed. Both stocks rank as “A” grade in our Q Stock quantitative screen. Our screen shows that both have above average visibility of earnings ratings and above average predictability scores. Both have dominant market positions. Both have some pricing power and both stocks feature long standing management teams. Coincidentally both have strong cash flows and both stocks have stock buy backs operating at the moment.

We expect the dollar may ease further. While many stocks that should be benefitting from the lower Australian dollar have not responded due to their own particular circumstances, the health stocks appear to be grazing in a very fertile  paddock at the moment. We expect the momentum to continue.