You don’t need to be an economist to know that a stronger dollar makes it more expensive to sell products overseas. With the S&P 500 deriving 40% of total profit abroad, and 50% when you back out the financials, it makes sense for investors to buy stock in companies with the bulk of the profit coming from the U.S. business. In a new report from Deutsche Bank, the analysts concede that while most domestics have outperformed, given low Treasury yields, they still make great sense. We noted recently how low Treasury yields are affecting stock values.
The Deutsche Bank report highlighted some of the firm’s favorite domestic stocks to buy now. All of them do either 100% of business in the United States or very close to it. We screened the stocks for valuations and dividend yield.
AT&T Inc. (NYSE: T) has to be one of the most ignored dividend plays on Wall Street. While growth has been admittedly slower over the past few years, the company continues to expand its user base, and strong product introductions from smartphone vendors have not only driven traffic, but increased device financing plans. This is an area that many on Wall Street believe could lead to some earnings weakness.
AT&T shareholders are paid an incredible 5.62% dividend. The Deutsche Bank team does not cover the stock, but included it as all of the business the company does is in the United States. The Thomson/First Call price target for the stock is posted at $34.70. Shares closed Monday at $33.56.
Macy’s Inc. (NYSE: M) is a top retail stock on the Deutsche Bank buy list. Analysts at numerous Wall Street firms have applauded the great strides the company is making in improving its online sales ability. The renewed online effort helped to boost what was a very solid showing for the recent holiday season. Many analysts also feel that the company’s mid-teens earnings-per-share growth profile over the next several years is achievable, driven by low single-digit same-store sales growth, e-commerce and improvements in store productivity.
Macy’s investors are paid a 2% dividend. The Deutsche Bank price target is posted at $72, and the consensus target is $65.64. The stock closed Monday at $64.18.
Nordstrom Inc. (NYSE: JWN) is another top retail stock and one of the leading fashion specialty retailers based in the United States. Founded in 1901 as a shoe store in Seattle, today Nordstrom operates 260 stores in 35 states, including 117 full-line stores, 140 Nordstrom Racks, two Jeffrey boutiques and one clearance store. Last year, Nordstrom raised its dividend by 10% in February, and another strong raise this year could be around the corner. The company’s strong square-footage growth profile and best in-class e-commerce business should drive solid dividend growth going forward.
Nordstrom investors are paid a 1.75% dividend. The Deutsche Bank price target is $83, and the consensus target is $76.41. Shares closed Monday at $76.57.
Public Service Enterprise Group Inc. (NYSE: PEG) operates nuclear, coal, gas and oil-fired generation facilities with a generation capacity of approximately 13,226 megawatts. Roughly 40% of its merchant generation capacity is nuclear and 20% is coal, and many analysts on Wall Street think that the company will be a relative beneficiary of the EPA draft rules that were released last year.
Public Service investors are paid a 3.47% dividend. The Deutsche Bank price target is $47, and the consensus is at $38.33. The stock closed Monday at $42.61.
Southwest Airlines Co. (NYSE: LUV) is a top transportation stock that makes the Deutsche Bank list. With the domestic market showing good strength and the pricing environment looking very solid for 2015, revenues should stay strong and continue to grow. Tumbling jet fuel prices, which are almost 30% of Southwest’s total costs, have been a key for improving revenues and earnings. Southwest is also busy expanding routes and adding new gates at key airports. With the restrictive Wright amendment now history at the airline’s main hub in Dallas, the company can expand routes all over the country to add additional revenue and service.
Southwest investors receive a small 0.6% dividend. Deutsche Bank has a huge $60 price objective, while the consensus price target is $55.50. The stock closed Monday at $44.53.
With none of the corporate business being hurt by a stronger dollar, and an improving economy with consumers having more income to spend, these stocks makes good sense for investors wanting to stay long stock but avoid companies that may announce falling sales and profits due to currency headwinds.
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