Whether instigated by external factors or the result of government decisions or policies, the devaluation of a currency has the potential to boost a country’s economic conditions. It’s not a permanent solution or the most viable way to put a country’s economy on track, but it works — mostly because a devalued currency encourages exports and slows down imports.
The loonie has been feeling down since the start of this month. Rather than staying at the optimal US $0.75 (which is still lower than the 2019 finish of US $0.77), the loonie is now at US $0.71. While a weak currency might not seem like a sign of strength, it has the potential to stabilize a country’s finances.
Given that one of the reasons it does that is by increasing exports, companies that earn the bulk of their revenues from foreign clients might see significant activity.
The number one export of the country is oil, and about half of the major exporters are energy companies. But since the energy sector has its own demons to deal with right now, we will stick with other sectors.
An automotive part manufacturer
Vehicles and related parts are one of the major Canadian exports. Most of the players in the country are foreign automotive companies like Honda and General Motors. But one Canadian name that stands out among the rest is Magna International (TSX:MG)(NYSE:MGA). It’s a $13.6 billion automotive part company with active sales centres in over 27 countries.
The company markets itself as more than simply an automotive company. It’s a tech company with entrepreneurial leadership, giving the company its edge. The company made $39.4 billion worth of sales in 2019, a step down from the 2018 sales of $40.8 billion.
A significant portion of which happened outside the country — a trend that’s likely to continue and fasten as a result of the lousy loonie.
Magna is also a Dividend Aristocrat with a decade of increased dividends under its belt. In the past five years, it has increased its dividends by 60%. Currently, the yield has been pumped up to about 5%. The stock is trading at a $45 per share, at a 34% discount.
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A gold company
Precious metals are another major Canadian export. Barrick Gold (TSX:ABX)(NYSE:ABX) is an Ontario-based mining company that currently has a market cap of about $48.5 billion, making it one of the largest players in the game. It’s also a major gold exporter, and almost all the mines that the company operates are on foreign lands.
It’s one of the few companies that are regained their past value on the TSX, making it a rarity among the plunging stocks. Currently, the company is trading at $27.3 per share at writing.
It’s also a dividend payer, though the frequency and the payout are relatively inconsistent. On the other hand, it’s a decent grower, and you may expect some capital appreciation if you invest in this golden company.
A devalued home currency may give a boost to the country’s export, something the country desperately needs. Between the oil market plunge and the pandemic driving the economy to the ground, an increase in exports can be a ray of hope.
Savvy investors may wish to consider these export-based stocks for decent gains in the future.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Magna Int’l.