7 Stocks That Benefit From Strong Dollar-Euro Exchange Rates

Analysts recommend buying these stocks with a strong dollar.

The US dollar recently reached parity with the euro for the first time in 20 years. Inflation may be reducing the purchasing power of the dollar for Americans, but in 2022, the dollar surpassed the euro and most other international currencies. In fact, the Invesco DB US Dollar Index bullish fund (ticker: UUP) is up 11.3% this year through July 21 in an extremely difficult market. A strong dollar is good news for US stocks, which generate limited international income. Here are seven stocks recommended by Bank of America analysts that have the highest positive correlation with the U.S. dollar.

Darden Restaurants Inc. (DRI)

Darden Restaurants is the parent company of Olive Garden, LongHorn Steakhouse and several other full-service restaurant brands operating in the United States and Canada. Analyst Katherine Griffin says full-service restaurants are rebuilding the business they lost during the pandemic. She says that Darden is well positioned both to take advantage of the pricing policy and to increase traffic. Griffin forecasts Darden revenue growth of 33.8% and profit growth of 71.3% in 2022. In addition, Darden has the highest positive correlation with the US dollar of all the stocks that Bank of America covers. The firm has a "buy" rating and a target price of $145 for DRI shares, which closed at $121.69 on July 21.

Shared Housing Stock (EQR)

Equity Residential is a real estate investment trust, or REIT, that owns and manages a diversified portfolio of residential real estate in the United States. Analyst Jeffrey Spector says that REITs with strong balance sheets, including low leverage and high liquidity, work best during periods of economic downturns in the United States. Spector forecasts net operating income from shared-equity construction of $1.8 billion. Not only does the REIT have a high positive correlation with the US dollar, it is also unaffected by the European market and pays a dividend yield of 3.4% on a 12-month basis. Bank of America has a "buy" rating and a $88 target price for EQR shares, which closed at $72.68 on July 21.

Southwest Airlines Co. (LUV)

Southwest Airlines is the fourth largest airline in the United States by revenue. Analyst Andrew Didora says airline revenue growth is accelerating in the second half of 2022. Southwest is one of the best airlines chosen by him in the current conditions, due to its strong balance sheet and high profitability. Southwest also has a business focused on the domestic market, which limits its exposure to weaker international travel trends and currencies. The latest data on airline bookings in the United States show that the total net sales of the system currently stands at 98% of the level that existed before the pandemic in 2019. Bank of America has a "buy" rating and a $60 target price for LUV shares, which closed at $40.89 on July 21.

Kroger Co. (KR)

Kroger is the largest conventional food retailer in the United States. Analyst Robert Ohms says Kroger benefits from its product range, highly profitable private label sales and price leverage in an inflationary environment. In addition, Omes says Kroger customers are taking advantage of its fuel reward offers more than ever as gas station prices rise. He says the number of customer visits is increasing and the customer base is growing - two trends that should help offset the inflation-induced decline in the number of goods purchased per customer. Bank of America has a "buy" rating and a $75 target price for KR shares, which closed at $46.28 on July 21.

Quest Diagnostics Inc. (DGX)

Quest Diagnostics is an American clinical diagnostic testing and services company with a national network of laboratories. Analyst Derick de Bruin says testing for COVID-19 has been a long tailwind for Quest, but revenue from the company's core business also grew 6.3% in the first quarter. Margins have been pressured by Quest's aggressive investments in direct-to-consumer initiatives and advanced diagnostic services, but de Bruin is optimistic about the company's long-term margin prospects as these investments begin to generate high-yield revenue starting in 2023. Bank of America has a "buy" rating and a $163 target price for DGX shares, which closed at $134.63 on July 21.

Public Storage (PSA)

Public storage is a REIT, which is the largest owner of self-service facilities in the United States. After attending a recent Nareit conference, Spector says self-service REITs are reporting better-than-expected operating trends and management teams have little concern about the risk of deliveries in 2023. In the first quarter, Public Storage reported a 29.4% increase in funds per share from operating activities and a 19.3% increase in direct net operating income in the same store. Gross profit at the same store before deducting indirect costs, depreciation and amortization also increased by 3% to 78.8% for the quarter. Bank of America has a "buy" rating and a $396 target price for PSA shares, which closed at $319.28 on July 21.

DR Ink. (DR)

UDR is a residential apartment REIT that owns more than 57,000 housing units in the United States. After meeting with the company's management in June, Spector said that UDR had reported some of the most positive demand trends in the residential REIT group. UDR is also experiencing a strong first quarter and hopes to continue this momentum when it reports second quarter earnings at the end of July. In the first quarter, UDR reported a 69% increase in revenue from operations per share and a 97.3% increase in occupancy. Growth in the southeastern region was particularly strong. Bank of America has a "buy" rating and an estimate of the fair value of UDR shares at $56, which closed on July 21 at $45.69.

7 Stocks that Benefit from a Strong Dollar:

Darden Restaurants Inc. (DRI)
Shared Housing Stock (EQT)
Southwest Airlines Co. (LUV)
Kroger Co. (KR)
Quest Diagnostics Inc. (DGX)
Public Repository (PSA)
DR Ink. (DR)

7 Stocks That Benefit From Strong Dollar-Euro Exchange Rates