These stocks are poised to rally on a weaker dollar

Published Mon, Aug 3 202012:31 PM EDT

(This story is for CNBC Pro subscribers only.) The dollar just had its worst month in a decade in July and the reserve currency is expected to weaken further as the world grapples with the coronavirus pandemic. The dollar index, which measures the U.S. dollar against six major global currencies, has dropped nearly 7% since May and lost about 4% in July, its biggest monthly drop since September 2010. The dollar was strengthening on Monday, but as the Federal Reserve continues its unprecedented monetary policy lending measures, the dollar could drop as much as 15%, according to Jefferies. As financial markets recover from the coronavirus recession, safe-haven appeal has been waning, pushing down the dollar index. Plus, market expectations for further easing of U.S. monetary policy, and a lack of agreement among U.S. lawmakers on further fiscal stimulus are also pressuring the dollar. "With the Fed now restarting a new round of QE, we think there is a case for a decline back to the previous QE era, especially if other central banks do not similarly expand their QE programs," Global Head of Microstrategy at Jefferies Desh Peramunetilleke told clients. Last week, the Federal Reserve said it will run the lending and credit programs aimed at countering the economic downturn until the end of the year . Originally set to expire Sept. 30, the programs will stretch to Dec. 31. The Fed has been expanding its balance sheet as it provides liquidity to the market, credit to small businesses as well as purchases of junk bonds. "Fundamentally, a weaker dollar is a headwind for margins outside the US," said Peramunetilleke. "But history shows that a dollar decline is accompanied by rising equities." Since a weaker dollar is generally good from all riskier assets, like equities, Jefferies screened for a handful of stocks its expects will benefit from a falling dollar. Jefferies expects companies with non-dollar revenues, like multinationals, to gain the most. The firm also said companies with dollar-debt but non-dollar revenues are likely to benefit, such as China developers. The stocks that made Jefferies' list all outperform more strongly during periods of a falling dollar, by at least 1% per month. The stocks listed must have outperformed during the most recent dollar index down cycle between 2017 and 2018. Plus, Jefferies removed companies with significant U.S.-dollar revenue, while for U.S. companies, the firm only included those with significant non-dollar revenue. Take a look at the list here. The list is full of manufacturing giants like Honeywell , Caterpillar and Deere & Co. The U.S. manufacturing companies will see their costs decrease as the dollar weakens. Apple , BlackRock and Mastercard also make the list. Apple's stock has been on a tear since its quarterly earnings last week. The technology giant's flirting with a $2 trillion market cap. Jefferies also identified chip stock Qualcomm , data center REIT Equinix and beauty company Estee Lauder as beneficiaries of a weakening dollar. — with reporting from CNBC's Michael Bloom.

Caterpillar excavators are displayed for sale at the Whayne Supply Co. dealership in Louisville, Kentucky, Jan. 27, 2020.

Luke Sharrett | Bloomberg | Getty Images

(This story is for CNBC Pro subscribers only.)

The dollar just had its worst month in a decade in July and the reserve currency is expected to weaken further as the world grapples with the coronavirus pandemic.

The dollar index, which measures the U.S. dollar against six major global currencies, has dropped nearly 7% since May and lost about 4% in July, its biggest monthly drop since September 2010. The dollar was strengthening on Monday, but as the Federal Reserve continues its unprecedented monetary policy lending measures, the dollar could drop as much as 15%, according to Jefferies.

As financial markets recover from the coronavirus recession, safe-haven appeal has been waning, pushing down the dollar index. Plus, market expectations for further easing of U.S. monetary policy, and a lack of agreement among U.S. lawmakers on further fiscal stimulus are also pressuring the dollar.

"With the Fed now restarting a new round of QE, we think there is a case for a decline back to the previous QE era, especially if other central banks do not similarly expand their QE programs," Global Head of Microstrategy at Jefferies Desh Peramunetilleke told clients.