The continually weakening US dollar indicates that the US government has over extended in its efforts to mitigate the current financial situation. Many may discuss the merits of current economic solutions but the result is very readily apparent. The US dollar’s value, as compared to other currencies, has become less.
Most that follow economic cycles around the world understand the consequences of a less valued US dollar. For those that do not follow these trends, it may be better understood by saying that a weak US dollar means that United States products are cheaper to buy than foreign goods and that foreign countries are better off buying United States products than buying from other sources – which means exports of US goods go up.
Generally speaking, this also means that any company manufacturing a part or entire product that might be bought overseas can take advantage of a 2.5% jump in export activity. Although this jump is hardly a large increase, it is nonetheless a nice increase in an otherwise poor economic climate. The question remains, however, where does one look for a small cap investment which can take advantage of a weak dollar? From this perspective there are many areas to consider.
The question to consider when looking for a small cap company taking advantage of export opportunity is “What is the product and/or its portion of the final product to be exported?” If one has a strategy oriented toward larger companies, such as Caterpillar, Deer or mining equipment companies, they can invest directly in those companies. Small cap investors, however, need to look backward a few steps at those companies manufacturing the parts and/or services needed to make the final product.
Given the state of the original equipment manufacturer (OEM) marketplace, these small caps should stand out and are likely underpriced. For instance, one might ask, “Which company manufactures the tracks for a bulldozer or rollers for a mining conveyor belt.” The process of finding these types of companies may take a bit of work and one may find a few ideas here at QualityStocks, but the export play, at the moment, is happening and should be an up-front thought.