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The US dollar is showing strength in 2022 not seen in decades, but it could come as a blow to some US companies and their investors. Rate hikes by the Federal Reserve, rising oil and natural gas prices, and slowing economic growth have all combined to send the value of the US dollar to its highest level in 20 years against other currencies. The euro, British pound and Japanese yen have fallen sharply against the US dollar this year. While the impact of a stronger dollar differs from company to company, it poses a particular risk to those with large international sales. For example, if a company agreed to sell its products in Japan at a fixed contract price in yen, then its dollar-denominated revenue would suffer. The list below shows the S&P 500 companies that are headquartered in the US and generate the smallest share of their revenue domestically. Source: FactSet The list is full of semiconductor companies that sell their products to other companies around the world. Qualcomm and Monolithic Power Systems, for example, receive less than 5% of their revenue from the US, according to FactSet. Applied Materials gets about 9% of its revenue from the US, while Nvidia gets about 16%. To be sure, many semiconductor companies sell chips and equipment to other manufacturers for use in products such as smartphones that end up being sold back to the US, blurring the boundaries of their end markets. What is certain is that chip stocks underperformed the broader market in 2022, even as the US government promised long-term support for the industry in the Chips and Science Act. One notable company on the list, aside from semiconductors, is Booking Holdings. Travel stocks only make about 13% of their revenue domestically in the US, and a strong dollar could be one reason stocks are lagging the S&P 500 this year, even as global travel recovers. For example, Booking reported a 38 percent increase in total bookings in the second quarter, but said it would have been 48 percent at constant currency. Auto parts supplier BorgWarner is also struggling in 2022 with just 17% of its revenue coming from the US. According to the latest financial results, the company’s revenue is distributed relatively evenly across Europe, North America and Asia. BorgWarner recently completed the acquisition of small battery charger company Rhombus Energy Solutions, which could increase its presence in North America in the coming years as electric vehicles proliferate. Meanwhile, medical company Organon has a women’s health business that gets most of its sales in the US, but many of the other medicines in its portfolio are mostly sold internationally. Two companies on the list that have significantly outperformed the market this year are chemical company Albemarle and energy supplier Schlumberger. Global commodities are almost always priced in dollars, even for international transactions, which can help these firms avoid the negative effects of the currency.
Credit: www.cnbc.com /