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The Euro’s Impact On Some Of My Stocks

8 June 2010 6 Comments

The Euro has been crushed over recent weeks, and some are anticipating the move to continue, perhaps even toward parity with the US dollar.  Multi-national stocks that derive a great portion of their revenues from the Euro zone have likely seen their stocks take a hit along with the Euro.  Some of my long term stocks fall into this category: McDonalds Corporation (MCD) and Philip Morris Int’l (PM).

McDonald’s Update

The fast food chain recently announced continued growth with regards to their May sales numbers.  This coincides with my theory that McDonald’s will continue to outperform as people cut back on spending.  There is no cheaper meal than McDonald’s so look for consumers to continue to flock there.  Along with their release, McDonald’s acknowledged that their full year numbers will likely take a hit due to Euro weakness.

As you can see in the below chart, MCD is well off its highs.  Stocks have been declining since around the beginning of May which coincides with the European debt crisis and the drop in the Euro.

McDonald's Corporation (MCD) Chart

I own MCD through my DRIP, so I’m buying on a continuous basis each month regardless of price.  As such, I’d prefer the stock to tank so I can buy more shares at a cheaper price and reinvest dividends at a lower share price.  MCD is a long term holding for me, so I’d rather accumulate more shares now.

Philip Morris Update

Philip Morris has had a similar path as seen by McDonalds.  With the Euro zone being one of Philip Morris’ largest markets, they too are affected by the currency fluctuations.  These currency fluctuations offer great buying points for these stocks.  With long term holdings like these where I’m interested in dividends, being patient for buying opportunities is very productive.

I sold off most of my PM position at $50 per share (due to my previous covered calls play).  I then sold a put that obligated me to buy PM at $46 in June.  This will likely hit and I will purchase 100 shares of PM at $46 per share (minus the premium collected).  While the shares are currently trading below this, I’m completely fine owning PM at $46 per share (especially considering I sold the same amount a few months ago at $50/share).  There’s a good chance I write another covered call in order to boost my income and potentially commit myself to sell these shares in the $49-50 range, as I think there will continually be lower and better buying opportunities.  If this thing goes under $40, be ready to move.

Chart below shows the trend is going lower:

Philip Morris Int'l (PM) Chart

Again, just to reiterate, I’m basically ignoring the currency fluctuations here on these stocks.  I want these stocks for the long term, therefore, I don’t care about short term Euro / Dollar movements.  Even more so, it’s not like the dollar is strong, it’s just relatively strongER right now than the Euro.  This trend could easily reverse as my position on the dollar’s future is well documented.