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Credit Suisse's Garthwaite says dollar entering long bear market, so load up on McDonald's and tech

  • Credit Suisse expects the U.S. dollar to weaken the most against the euro and Japanese yen.
  • As a result, the report expects the biggest beneficiaries from dollar weakness will be U.S. technology companies and firms with significant exposure to Europe such as McDonald's.
  • That said, the U.S. dollar climbed to a one-week high Tuesday after indications of a healthier U.S. labor market.
A McDonald's restaurant in St. Petersburg, Russia.
Peter Kovalev | TASS | Getty Images
A McDonald's restaurant in St. Petersburg, Russia.

U.S. companies most exposed to Europe, such as McDonald's and Activision Blizzard, should benefit from the U.S. dollar's slump, Credit Suisse said.

"We on the Global Equity Strategy team believe that the dollar is likely entering a long-term bear market," Andrew Garthwaite, Credit Suisse's managing director and global equity strategist, said in a note with a team of analysts Tuesday.

"Independent of their sector, we like US corporates with significant euro exposure that are Outperform-rated by CS analysts. Of these companies, Alexion, Gilead, McDonald's, Activision Blizzard and Carnival have positive earnings and sales momentum," the report said.

US companies with significant European exposure that are rated outperform by Credit Suisse

Source: Credit Suisse

Another stock on the Credit Suisse list of Europe-exposed stocks, Priceline, hit an all-time high Tuesday.

Over the next 12 months, Credit Suisse's FX strategists expect the U.S. dollar to weaken the most against the euro and the Japanese yen, falling 3 percent against each, in contrast to a 2.5 percent decline for the overall U.S. dollar index. The index tracks a basket of global currencies, of which the euro has the greatest weight at more than half.

Garthwaite estimates every 10 percent decline in the U.S. dollar index adds about 5 percent to U.S. earnings per share since about 42 percent of S&P 500 sales come from overseas. A weaker dollar makes U.S. goods cheaper for foreign buyers.

Within the S&P 500, Garthwaite pointed out the technology sector has the greatest overseas exposure at 59 percent of sales and the semiconductor subsector generates an even higher 82 percent of sales from outside the U.S.

"A weaker US dollar should be another tailwind helping technology to continue its outperformance," Garthwaite said.

Technology has climbed more than 23 percent this year as the top performer in the S&P 500 and the VanEck Vectors Semiconductor ETF (SMH) has gained 22 percent.

The U.S. dollar index has fallen to lows not seen in more than a year and dropped in July for its first five-month losing streak since 2011.

The euro has climbed to highs not seen in more than two-and-a-half years as euro zone economic data has improved and the European Central Bank appears ready to cut back on stimulus.

That said, the U.S. dollar index isn't a one-way trade lower. The currency index turned higher Tuesday to hit its highest in more than one week after the Bureau of Labor Statistics said job openings hit a record high in June.

The dollar remains more than 8 percent lower for the year.

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