Exporters' prospects go up as dollar falls
DURING the last few years, the falling dollar has opened overseas markets for some American companies. For instance, 3M has added manufacturing plants in Belgium and Japan, and in the last six years the company has increased from 1,000 to 1,500 the number of researchers overseas. ``The dollar has been a plus for us,'' says Jon Greer, a spokesman the the Minnesota Mining & Manufacturing Company in St. Paul, Minn. ``The overseas markets are one major area for growth. Our companies have done good jobs of realizing the benefits of the falling dollar and have been able to maintain pricing and market share.''Skip to next paragraph
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Last year the falling dollar added $79 million, or 35 cents a share, to the highly diversified company's net income, which, worldwide, totaled $779 million on sales of $8.6 billion, according to Mr. Greer. Forty percent of 3M's business comes from outside the United States; one-third of the products sold by 3M subsidiaries are imported from the parent company. 3M makes more than 50,000 products in 49 countries, including the US.
The value of the dollar has fallen almost 50 percent since early 1985. It continues to flirt with limits lower than it has seen in decades.
On Thursday, after October's trade deficit figures came out, the dollar fell to 129 Japanese yen, its lowest level since 1949, and to 1.632 West German marks. The dollar hit its post-1949 low of 1.631 marks on Nov. 30. (In 1949 the International Monetary Fund revalued currencies.)
October's trade deficit figure of $17.63 billion reflected a 25.2 percent increase above September's $14.08 billion deficit. The consensus for October was a figure between $14 billion and $16 billion, says Maxine Beissel, a securities analyst with Piper, Jaffray & Hopwood, a brokerage in Minneapolis.
The financial markets tend to react negatively to high trade deficit figures, because of the concern that big deficits will force the dollar down more. Some observers think this could in turn cause a US recession, because the Federal Reserve Board might be inclined to push up interest rates in an attempt to stabilize the dollar.
The Dow Jones industrial average, which climbed 135.78 points in the first three days of trading last week, finished the week up a record 100.30 points to close at 1,867.04.
One advantage of a lower dollar is that US products are more competitive overseas, while imports are more expensive in the US. The greatly anticipated shift in the monthly trade figures, given the dollar's drop, has not occurred because climbing import prices have hidden the gains achieved in export sales. The Commerce Department said that exports climbed 3.6 percent in October, while imports skyrocketed 12.3 percent.
October's trade figures, however, may not be as bad as they seem, because they are not adjusted. ``Exports were up nicely, but the falling dollar in nominal terms affected the figures,'' Ms. Beissel explains. ``If you looked at the change in units rather than in dollars, you'd get a truer sense for what's going on in the trade area,'' she adds.
The dollar's fall has clearly benefited certain industries and companies, and these areas deserve investors' attention now, portfolio managers and analysts say.
Eugene Peroni, a vice-president and director of technical research at Janney Montgomery Scott Inc., in Philadelphia, advises investors to look to cyclical stocks, which generally rise quickly when the economy heads up and fall quickly when the economy heads down.
``Consider those stocks that are earn-ings-sensitive, based on trade factors,'' Mr. Peroni says. Those doing well include raw materials, machinery, paper, manufacturing, chemicals, copper, aluminum, and some computer companies, he notes.
``We would look at exporting companies, forest products, technology, drugs, and any company that has a market abroad, where products are more competitive,'' explains Beissel.
She does point out, however, that in some economies, investors should consider what stage of an economic cycle the country is in. ``You wouldn't want to be investing in forest products when a country is in the bottom of the business cycle, for example,'' she observes.
If the dollar were to stabilize, it would start showing through in the trade figures, Beissel says. ``If we continue to increase imports, we've got to see stronger exports. The companies that are set up to distribute abroad will benefit from the climate of the falling dollar, and their jobs in selling should be easier.''
Peroni says he expects the benefits of the falling dollar to be seen in the November trade figures.
Companies like a stable dollar, because, for one thing, it makes planning easier, Beissel says. ``We would like to have the dollar stabilize somewhere. When the dollar falls fast, it's hard to plan, because companies have to adjust expense levels, inventories, personnel. Even an increase in sales requires planning.''
Henry Kaufman, Salomon Brothers' chief economist, managing director, and member of the executive committee, said at a press conference last week that in 1988 the federal budget deficit and inflation will be factors undermining the US dollar. By year-end 1988, the dollar will drop to the levels of $1 equaling 120 yen and 1.5 marks, Dr. Kaufman said.
Paul Boltz, financial economist at T.Rowe Price Associates Inc., Baltimore, agrees that the dollar will fall further. He noted at a press briefing last week that ``another 10 percent or 15 percent decline in the dollar seems reasonable.''