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Citigroup: Dollar's Weakness Benefits Largest S&P 500 Companies

by: FP Trading Desk April 30, 2007 | about stocks: IVV / SPY / VV    

FP Trading Desk

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While continued weakness for the U.S. dollar is sending exchange rates versus both the British Pound and the Euro to new lows, softness for the greenback may be good news for America’s largest multinationals because of their substantial international exposure.

“Typically, large-cap stocks exhibit a greater reliance on non-domestic sales and profits than small- and mid-cap names,” Citigroup analyst Tobias Levkovich said in a note to clients

By his calculations, the 25 largest S&P 500 companies get more than 40% of their revenue from overseas, versus about 27% for the broader index and only 16% for the S&P small-cap index.

He also noted the differences between sectors, pointing out the international dependence from the semiconductors, technology hardware and equipment, as well as household and personal products sectors.

Meanwhile, he said banking, retailing, telecom services, utilities and real estate all have limited sources of non-domestic revenue.

So while these U.S. mega-caps may get a support boost from a falling dollar, the currency’s direction is not easy to forecast.

Given that bearishness towards the dollar is already pretty strong, Mr. Levkovich cautions against making investment decisions based on projecting U.S. dollar forecasts.

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