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While the Dollar Dives, Commodities Rise

February 29, 2012

If you’re an American consumer, the weakening dollar has given you plenty of reasons to groan. From higher prices at the grocery store to rising prices at the pump, our wallets are taking a beating.

And the dollar isn’t likely to make a recovery anytime soon. After several rounds of Quantitative Easing and Operation Twist, it’s fair to say the Federal Reserve has sacrificed the dollar on the altar of monetary policy. The Fed’s policies have created a zero-interest rate environment that encourages spending and may someday lead to a recovery in the housing market, but they also keep the dollar depressed. And now that the Federal Reserve has pledged to keep the federal funds rate near zero until 2014, the dollar is on the decline for the long haul.

But the consumer’s loss can be the savvy investor’s gain. You see, there is big money to be made from a low dollar if you know where to look.

There are a number of ways to profit from the falling dollar, but today I want to focus on an asset class that is especially sensitive to the dollar, commodities. I’m not talking about buying risky commodities futures or something that might land you two tons of pork bellies in your backyard. I’m talking about stocks, especially fundamentally stable companies whose underlying business is in a commodity. I have three such plays that you should seriously consider for your portfolio if you want to turn the low dollar to your advantage.

The first stop on our tour of plays to profit from the falling dollar is the agriculture sector. No matter where in the world they are grown, crops like corn and soybeans are priced on the global market in dollars. When the value of the dollar falls, it takes more dollars to buy these commodities, and prices rise. Agricultural companies are the first to profit because they can capitalize on higher prices by going into rapid expansion mode to boost their bottom line.

In particular, I’d highlight two companies in the nitrogen fertilizer business: CF Industries Holdings Inc. (CF) and its wholly owned subsidiary, Terra Nitrogen (TNH).

CF Industries Holdings Inc. owns and operates world-scale nitrogen and phosphate plants, and serves agricultural and industrial customers through its global distribution system. It’s a no-brainer that companies are looking to CF Industries to help them boost production in this environment, and those sales are already translating to higher earnings.

The company, which initially failed in repeated offers to buy fertilizer producer Terra in 2009, finally made the deal in 2010 after a prolonged bidding war. The Terra acquisition made CF Industries the largest North American producer of nitrogen-based fertilizers and second-largest fertilizer company in the world.

In the past, I’ve had both CF Industries and Terra on my Buy Lists, and they have produced significant gains.  That’s because when crop prices rise, farmers want fertilizer to squeeze out every last drop out of their land. So, it’s really no wonder that I sold TNH for 43% gains in my Emerging Growth service and for 61% gains in Quantum Growth.

Now, you may be wondering—why would I recommend two stocks from the same parent company? Well, on the trading floor, these stocks behave very differently. TNH is a thinly traded stock, so it tends to have more dramatic price swings. But the stock also offers a whopping 8.2% dividend yield! On the other hand, CF offers just a 0.9% dividend yield, but has the steady returns of a blue chip stock. Depending on your tolerance for risk and craving for high yields, either of these stocks would make a great addition to your portfolio.

Another way to profit from the falling dollar is through metals and mining stocks. These stocks not only benefit from higher prices for what they pull out of the ground, but from the flight to safety that happens when the markets get volatile. Now, it may be tempting to join the latest “Gold Rush” and buy up the metal itself, but I have a much more attractive alternative.

In an industry with almost 700 players, it seems difficult to isolate a well-balanced, low-risk stock. But, with a little help from my free Portfolio Grader tool, I have done just that.

Based in Toronto, Franco-Nevada Corp. (FNV) is considered the world’s leading gold royalty company. Its portfolio is spread across North America, Africa and Asia, so the company is profiting from some of the largest gold discoveries out there. The great thing about this stock is that it provides less risk than holding gold itself or even an operating gold company, yet has more yield than a gold ETF. In the gold industry, this stock is in the top 5% in terms of market cap, the top 10% in terms of sales growth, and the top 2% in terms of earnings growth!  Unlike most gold miners, FNV also pays a dividend of about 1.1% annually.

So, if you’re looking for a gold play with low risk and favorable rewards, this is the place to be.

Chemicals and paper products are another way to play a weak dollar. Here are seven more commodities plays you could safely add—all of them rate highly on my Portfolio Grader metrics.  


Symbol
Company Name Industry Quantitative Grade Fundamental Grade Total
CMT Core Molding Technologies Inc. Chemicals A A A
GOLD Randgold Resources Ltd. ADS Metals & Mining A B A
GRA W.R. Grace & CO. Chemicals A B A
GRX Gold Reserve Inc. Metals & Mining A C A
NP Neenah Paper Inc. Paper & Forest Products A B A
USLM U.S. Lime & Minerals Inc. Construction Materials A B A
VHI Valhi Inc. Chemicals A B A

An underrated way for you to best take advantage of the falling dollar is to own big multinational companies that have strong sales overseas. When those revenues come back to the U.S., they are converted to U.S. dollars. And because the dollar is on the decline, companies get more dollars for each yen, euro or dinar of foreign revenue, thanks to the currency conversion. It’s like an extra bonus each earnings season and helps boost earnings for smart companies that are able to sell their products in foreign markets.

My current Buy List contains more than a dozen companies that have strong growth in emerging markets, but that are firmly located here in the United States.

There’s the California cloud computing company that has international revenue growth of 38% for a total of $1.94 billion in all of 2011.

There’s the North Carolina textile company with 20% international revenue growth. Management is expecting foreign sales to account for 37% of their business in 2012 and is well on their way to meeting their goal of 40% of revenues from international markets by 2015.

And then there’s the Ohio-based IT company that in the last quarter had $145 million in sales from Europe, the Middle East and Africa, plus an additional $113 million from the Asia Pacific region.

Each of these companies is reaping the benefits of currency conversion windfalls, and I want you to get in on this powerful trend.

But the names of these stocks are closely guarded and only available to my Blue Chip Growth members. You must be a member to get in on the action.

Through a special offer in effect right now, you can enjoy a full year’s membership to Blue Chip Growth for just 27 cents a day! Full details on this special pricing and 6-month money-back guarantee are here.

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