CFOs in dollar ‘panic mode.' How to trade it

Published Tue, Mar 24 20157:42 AM EDT

Last year, companies in North America reported a negative currency impact of $27 billion, up 53 percent from 2013. With the U.S. dollar index up another 7 percent in 2015 as the first quarter comes to a close, company CFOs are in "panic mode," according to the head of a firm that helps companies manage currency risk. Here's how to trade it. That figure comes from Wolfgang Koester, who runs FiREapps, a technology company that allows companies to see their currency exposure in real time and counts Google and Red Hat among its customers. "Q1 will be worse … significantly," he said. After the U.S. dollar index jumped 5 percent during the fourth quarter, companies like Hewlett Packard came out with disappointing forecasts. Now that the dollar has continued an even faster march upward this year, is there any doubt that more negative warnings from multinationals are ahead? (A short-term reprieve in the final two weeks of the quarter—like we're seeing now—won't change the damage already done, strategists said.) Koester's firm wrote a paper on just how big this negative currency exposure was last year. On average, it said, the hit to North American companies on earnings per share was 6 cents a share, double the average amount in 2013 and 2014. Read More 3 reasons why Apple worth $1 trillion in 1 year In one of the more interesting stats in the paper, FiREapps notes that 63 percent of North American companies were asked by a Wall Street analyst about currency impact on their earnings conference calls in January and February. That's up from 47 percent a year earlier and a sign that analysts are clearly concerned about more trouble ahead. While the S & P 500 is near another record, company analysts are slashing earnings estimates on the dollar woes. In December, analysts were expecting almost 9 percent growth in the first quarter, according to S & P Capital IQ. Today, they expect first quarter earnings to decline by 3 percent. The money play: "Retailing, along with insurance and airlines stood out among the industries that stand to gain from a strong U.S. dollar," wrote Andrew Burkly of Oppenheimer in a report at the end of last week. Burkly looked for stocks that historically do well in a rising dollar environment and ones that are experiencing positive earnings revisions from analysts this quarter. Lowe's , Coach and Clorox stood out. CNBC Pro, using quantitative tool Kensho, looked at past quarters when the U.S. dollar index increased by 4 percent or more over the last 10 years. Among the biggest losers were Joy Global , Nabors Industries , Alcoa , Transocean and Avon Products , which all lost, on average more than double digit percentages during that three-month period. Ford , Caterpillar and Molson Coors tallied losses greater than 5 percent on average. On the flip side, our Kensho search found domestically focused companies like Actavis , Zoetis , Monster Beverage , Netflix , Celgene , Delta Airlines and Dollar General all performed well during those quarterly surges in the U.S. dollar, posting gains greater than 10 percent on average. Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho.

Stoyan Nenov | Reuters