Call of the week: Best stocks for a dollar bear market

The call of the week is a bearish one on the US dollar and has far reaching implications for many US companies.

While shorting the US dollar has already been a winning trade this year, analysts at Credit Suisse expect the weakness will continue, saying the greenback is “likely entering a long-term bear market.”

The team of analysts, including Andrew Garthwaite, managing director and global equity strategist at Credit Suisse, point to history as a guide, noting that the dollar has tended to move in long-term cycles, with bull markets lasting 6-7 years and bear markets lasting about 9-10 years.

They also note the dollar has appreciated 43% in this latest cycle, comparable to what we saw during the last dollar bull market.

And they expect the dollar to weaken the most against the yen and the euro.

So how to play this?

Credit Suisse singles out companies like Alexion (ALXN), Gilead (GILD), McDonald’s (MCD), Activision Blizzard (ATVI) and Carnival (CCL) — companies that not only have positive earnings and sales momentum, but significant European exposure.

So even though McDonalds, Activision Blizzard and Carnival are all trading near their all-time highs, there’s still room for them to climb, according to Credit Suisse.

“A weak dollar is good for global equities until the point at which the Fed is compelled to react to its inflationary impact,” Garthwaite writes. “This would, we believe, require a further 10% depreciation. Each 10% off the dollar [index] adds [about] 5% to US EPS, on our estimates.”

But be careful, the dollar index isn’t necessarily a direct trade lower — it turned slightly higher earlier this week on strong economic data.