Asset-Rich Companies for a Falling Dollar

I am hearing a lot of talk of late about the dollar. The consensus seems to be that the dollar is going to continue to fall in the months, and possibly years, ahead. The contrarian part of me thinks that if everyone thinks it's going to happen, it's not. I have heard some traders say that the buck is due for a technical rebound, but even they remain long-term bearish against the major foreign currencies.

I have to admit that the dollar argument makes a lot of sense. We have spiraling deficits and artificially low interest rates, and we're suffering serious geopolitical black eyes in both Iraq and Afghanistan. Out biggest trade partners are talking openly about the need to diversify reserves away from the dollar.

Now, I am not a currency trader, nor do I play one on television. The last currency-related trade I did was back in the 1980s when we were buying high-yield Canadian, Australian and New Zealand sovereign debt. Since then, I have pretty much avoided those markets because as a value investor, it is tough to get a handle on currency fluctuation and determine what is cheap and what is not in an increasingly correlated world.

Here is what I do know. If the dollar does continue to fall as many seem to suggest, real assets in the U.S. are going to get cheap. We saw this before when the Japanese stepped in and bought Rockefeller Center, Pebble Beach and a whole lot of property in between. It won't be any different this time, as sovereign wealth funds and European and Asian investment funds will develop an appetite for buying American.

This favors certain asset classes, chief among them, I think, being hotel properties in the U.S. When I look at company such as Sunstone Investors (SHO - commentary - Trade Now), which owns upscale hotels and is struggling in the recession, I see a premier asset that foreign investors would love. The company owns 43 hotels with more than 14,000 rooms under marquees labels including Marriott, Hyatt and Hilton. An aggressive acquisition program in the first part of the decade has left the company with relatively high debt loads and scrambling to fix the balance sheet. The company has eliminated the dividend and is in discussions about reworking mortgages and even giving back certain properties to weather the storm. If the dollar continues to decline, the company is a great candidate, in my opinion, to sell either the whole company or selected properties to foreign investors.

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At the time of publication, Melvin had no positions in stocks mentioned, although positions may change at any time.

Tim Melvin is a writer from Stevensville, Maryland, who spent 20 years a stockbroker, the last 15 as a Vice President of Investments with a regional firm in the Mid Atlantic area. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Melvin appreciates your feedback; click here to send him an email.