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Blog : For Penny Stocks a Weak Dollar Means Thinking Globally
by John Whitefoot on October 12th, 2007
A couple weeks back I watched The Colbert Report. Mr. Colbert made reference to the fact that the lowly Canadian dollar has reached parity with the U.S. dollar. The two currencies have not been on par with each other since 1976.
By comparison, Colbert went on to note that in 2002, the Canadian dollar was worth as little as $0.62, and was often referred to as a Peso.
What does a declining greenback mean to penny stock investors? Historically, small-cap companies and penny stocks have tended to suffer when the dollar declines against other major currencies around the world. While a weaker dollar can help some U.S exporters, smaller companies have historically underperformed larger ones.
Smaller businesses are usually domestic in nature and rely on domestic sales rather than overseas revenues. Or at least, that’s the old school wisdom. And by ‘old school’ I mean pre-Internet days.
Today, more penny stock companies are reaping rewards from international growth, thanks in large part to a world of commerce interconnected by advances in technology. And it is these progressive penny stocks with a growing international footprint that are turning heads in the shadow of a weakening dollar.
“The conventional wisdom is that an environment of a falling dollar is not good for small-cap stocks,” said one portfolio manager. “There are many small companies now that have significant amounts of business being driven from overseas. That wasn’t true 20 years ago.”
Times are indeed changing. And with that comes the need for green and seasoned investors alike to take a fresh look at penny stocks. Another portfolio manager said recently, “Small caps are so diverse today that no matter where we are in the economic cycle there are opportunities.”
“Small caps have more international exposure today than in the past. Because of the Internet and plunging computing and communications costs, smaller companies can reach international markets more easily,” noted one small-cap analyst.
Top U.S. government officials suggested recently that the weak U.S dollar isn’t likely to go away any time soon. Whether you’re a blue chip giant or emerging penny stock, if you’re looking to grow, you have to take advantage of the cheap dollar and think globally.
But don’t let the dazzling sparkle of increased international revenue be your divining rod for locating stellar penny stocks. The key to finding excellent penny stocks is to look at fundamentals, management and domestic growth. And look at international exposure as icing on the cake.