Seven Stocks That Benefit From a Falling Dollar

With plans and plants announced for 2005 and 2006, it seems that none of these European and Japanese carmakers is expecting the dollar to turn around soon. Economists estimate that the dollar needs to fall by an additional 15% to 20% in trade-weighted value to significantly reduce the U.S. trade deficit.

The winners in all this are the U.S. auto-parts supply companies, which have spent the last decade turning themselves into the world's low-cost suppliers. Now they are about to get a chunk of new business that isn't about to go away soon and will likely grow larger if the dollar declines further. These companies thus get a double edge from a falling dollar because:

They can sell more overseas because their dollar-denominated product becomes cheaper vs. those of, say, European or Japanese suppliers every time the dollar takes a knock.

They will pick up global market share as overseas carmakers look to offset the falling dollar by increasing the dollar-based content of their cars.

I think all the North American auto-parts suppliers should benefit from the efforts of European and Japanese automakers to hedge their exposure to a weaker dollar. But a couple of companies stand out as best positioned to benefit from the trend: BorgWarner(BWA Quote) and Magna International(MGA Quote).

My top pick is BorgWarner, because the company has been so aggressive about growing its business with foreign automakers. Volkswagen, for example, uses its DualTronic manual-automatic transmission, and the company has turned Honda Motor(HMC Quote) into a big customer. Top customer Ford(F Quote) is just 25% of sales.

Magna International could come out as a big winner if its partnership with BMW pans out, but it carries a fair amount of risk. Lear has made itself over into a global supplier of increasingly complete automotive interiors. But too much of the company's business is with the U.S. Big Three for it to fit with this weak-dollar theme. I like Dana as a turnaround story that's taking off, but the company is heavily tilted toward trucks and light trucks.

What other industries or sectors are worth a look? One that comes to mind is the oil drilling and service sector, where a weak dollar makes the dollar-denominated cost/benefit ratio for increasing drilling look very attractive to the big oil producers right now.