BOSTON (TheStreet) -- The dollar giveth and the dollar taketh away. Just ask big U.S. companies that rely on international sales.

With third-quarter earnings season under way yesterday, investors should keep an eye on large-cap multinational companies such as

Procter & Gamble

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General Electric

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, and what executives reveal about business in the fourth quarter due to the strengthing U.S. dollar.

Many large U.S. companies that derive a substantial amount of revenue from abroad have enjoyed the benefits of a weaker dollar, which makes their products more competitive. Now, however, a stronger dollar may move against them, even as third-quarter financial results are seen beating analysts' expectations.


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, a member of the

Dow Jones Industrial Average

, kicked off earnings season yesterday. The aluminum maker said earnings trailed analysts' estimates.

Third-quarter results likely will be "decent," says Paul Nolte, director of investments at Dearborn Partners, a Chicago-based investment firm with $3 billion in assets under management. But executives will have plenty to say about negative trends, particularly in the movement of the dollar, they're seeing that carried over from the end of the third quarter into the fourth.

"You need to focus not on what has happened but what companies are talking about going forward," Nolte says. "One of the headwinds will be the stronger dollar. We've had a stronger dollar over the last three months or so, and that could put the ding in some of the earnings of the very large multinationals. The commentary about the fourth quarter will be extremely important."

The euro trades at $1.36, down sharply from three months ago due to the debt crisis in Europe. In the past week,

Goldman Sachs

analysts became the latest firm to cut its year-end forecast for the euro to $1.38 per U.S. dollar, down from $1.40. Others are more bearish on the euro, with Bank of America/Merrill Lynch analysts calling for the euro to sink to $1.30 per dollar by the end of 2011. Capital Economics forecasts no letting up -- the firm expect the euro to drop to $1.10 by 2013, according to a report by the

Associated Press


"There will be a lot of emphasis put on guidance and the impact of the stronger dollar. That's not going to go away," says Robert Pavlik, chief market strategist with Banyan Partners, a Palm Beach Gardens, Fla.-based firm with more than $1 billion in assets. "Unless the federal government starts currency intervention, you're not going to have much headway."

Pavlik says management's outlook will be even more important as bullish third-quarter results are widely expected. The

S&P 500

, after falling 7% in September, is up 5.5% in the past five sessions, leading up to Alcoa's report.

"With the recent run-up in the stock market, a good percentage has been priced in. We could be setting ourselves up here for another downturn unless guidance is so strong," Pavlik says.

After being told to seek the safety of large-cap U.S. stocks with international exposure to defend against the summer swoon in equities, investors should now be rightfully confused. If those stocks were supposed to be defensive -- safe havens, even -- why is there sudden concern about the impact of a stronger dollar?

At any rate, with the U.S. economy stuck in a rut, Pavlik says sticking with large-cap U.S. multinationals is one of the few remaining hideouts even if the dollar strengthens and dents overseas revenue.

"Where else do you hide? Where else do you go? Are you going to go to a money market fund that's giving you nothing?" Pavlik says. "Really, there are very few places to hide. Gold is collapsing. The dollar is going up. Sticking with the large-cap multinationals is the lesser of the two evils."

Individual investors, already fed up with the wild swings and volatility in the market, may not find that answer satisfactory, and Pavlik says he understands their frustration with the neck-snapping volatility in recent months. According to data provided by Dow Jones Indexes, the Dow has seen intraday swings of more than 300 points 20 times since Aug. 1.

"A lot of individual investors have taken that to heart," Pavlik says of the market volatility. "Many of the individual investors have removed themselves from the equation, so you're left with hedge funds, day traders and high-frequency traders. They're blamed for the volatility, but that's what you get with no investors in the market."

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Nolte says trading on Monday encapsulated what's wrong with the stock market. "The market was oversold but it is quickly becoming overbought. That's been a hallmark of this incredibly volatile market," he says. "That's why people aren't looking at earnings. They're looking more at Europe."

The investment managers aren't yet buying large-cap stocks. But Pavlik says he's deliberating while keeping an eye on market leaders with international exposure, such as


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"I'd be a buyer at certain levels, but just because stuff is on sale doesn't mean I'm buying yet," Pavlik says. "In other words, I'm window shopping but I'm not going into the store right now." Pavlik says companies are facing too many uncertainties, most of which have nothing to do with third-quarter earnings.

"Greece is going through a restructuring, like it or not," Pavlik says. "Then you're faced with Obama's jobs plan, which has zero chance of passing Congress. After that, we'll hear from the special deficit committee about reducing government spending, which should come around Thanksgiving. In December, you're going to see tax-loss selling. You aren't going to see traction until the end of the year with a Santa Claus rally."

Similarly, Nolte is waiting on the sidelines. "We've been sitting with an above-average amount in cash and bonds," he says. "The equities we hold are in the large-cap-growth area. We've stayed away from value stocks, which have been dominated by financial stocks that have lost big this year. Technology and health care look good as they are relatively inexpensive with good dividends."

Oddly enough, Nolte suggests that investors protect against a strengthening U.S. dollar by looking to the area of the market that has gotten smoked this year: small-caps.

-- Written by Robert Holmes in Boston


>To contact the writer of this article, click here:

Robert Holmes


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