The Motley Fool

Are these ‘dollar earners’ undervalued?

It’s clear that the weaker pound has been behind recent gains in the FTSE 100. That’s because around 75% of the revenues earned by FTSE 100 companies come from overseas, and big ‘dollar earners’, such as BP and Glencore, have massively outperformed more domestically-focused shares.

However, not all companies with significant dollar exposures have seen their share prices soar in the last few months. Such shares include those in the financial sector, where concerns surrounding the sector’s underlying fundamentals have kept valuations depressed.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Dollar link

Prudential (LSE: PRU), which earns around 40% of its IFRS earnings from the US, is actually a much bigger dollar earner than it initially seems. That’s because almost a further 30% of its IFRS earnings come from Asia, where local currencies are either directly linked to the dollar or — at least — generally follow in the dollar’s direction of movement against the pound.

In terms of its European embedded value (EEV) profits, which is a better measure of long-term profits, the share of earnings from the US and Asia is even higher, at 83% of the group’s total long-term business.

Prudential’s sizeable presence in the US and Asia is expected to underpin continued growth in the company. With a strong balance sheet and high levels of cash generation, the insurer appears to be well placed to capitalise on long-term structural trends in Asia — although macroeconomic headwinds are likely to linger in the short term.

City analysts expect the company to report earnings per share of around 120p for 2016, but if current exchange rate levels persist, investors could benefit from a further positive translational effect of around 5-7p a share. But even without taking into account of this additional currency benefit, shares in the Pru trade at a forward P/E of 11.4 and have a prospected dividend yield of 3%.

Lagging behind

Shares in Standard Chartered (LSE: STAN) have risen by 21% since the Brexit vote of 23 June, but that gain lags well behind its larger rival HSBC, whose shares have increased by 41% over the same period.

The lack of dividends may explain why Standard Chartered seems to be less attractive to investors, but there are also many reasons why the stock should do better. Firstly, the emerging markets-focused lender has considerably more of its assets overseas, and secondly, management appears to be pulling out all the stops to cut costs and improve its return on equity.

In addition, Standard Chartered seems deeply undervalued, with a price-to-tangible book value of just 0.69. However, as earnings are expected to come under pressure from the slowdown in emerging markets and rising restructuring costs, investors are concerned about whether the bank can earn its cost of capital in the medium term.

City analysts expect the bank to report full-year adjusted earnings per share before restructuring costs of around 27.5p this year, which puts its shares on an unappealing forward P/E of 24.6. But for 2017, analysts expect adjusted earnings to bounce back by 86%, which means its forward P/E could fall back to a more reasonable 13.2 times.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.