Seven Stocks That Benefit From a Falling Dollar

Fearing a rising euro, many European companies have begun to seek ways to hedge. In the electronics sector, for example, that means moving production to China or buying more components from Chinese companies, because those products are priced in the dollar-pegged yuan. For other European companies, especially those already doing big sales in the U.S. and that already have manufacturing plants and supplier relationships here, it means increasing production in the U.S. or purchasing more components from U.S. suppliers. That's an especially compelling option in industries where European companies face strong competition from Japanese manufacturers with substantially larger U.S.-based production.

In the auto industry, Europe's Volkswagen(VLKAY Quote) saw the rise of the dollar lop more than 1 billion euros, or about $1.3 billion, off of sales in 2003, and that was despite the company's use of derivatives to hedge about 40% of its dollar exposure. As a response, the company is shifting production of its Jetta and Bora models from Germany to Mexico and Brazil, whose currencies more closely track the dollar and where many deals are priced in dollars. In 2005, the company will shift production of its Golf models sold in the U.S. to Brazil as well.

DaimlerChrysler(DCX Quote) will do even more. The company will build its new Mercedes family car at its Alabama plant, investing $600 million for expansion, and export some of the production back to Europe. Saab, the Swedish unit of General Motors(GM Quote), will soon start to build an SUV at one of its parent's U.S. plants.

And most importantly for investors, these companies will be increasing the share of U.S.-made components used in their cars.

Japanese automakers, which already produce more cars in North America than their European rivals, are also stepping up their U.S. production and sourcing. Toyota Motor(TM Quote), which produced 1.1 million cars in North America last year, compared with about 90,000 for DaimlerChrysler's Mercedes division, plans to open a sixth North American plant in Texas next year.