Five FTSE 100 shares set to benefit from a plunging pound

Stock screen expert Ben Hobson has found some of the best performing blue-chip shares that derive substantial revenues in America, and which could receive a big boost to profits.

With the value of the British pound tumbling against the US dollar, investors are facing up to the dramatic impact that exchange rates can have on company revenues.

For firms that import goods and raw materials, or rely on international supply chains, a weaker pound is bad news. That’s because profit margins get squeezed when pounds no longer buy as much as they once did.

But on the flip side, a weaker pound can be good for exporters because their goods look cheaper to foreign buyers. Firms that generate sales in dollar-denominated markets also get a boost when they convert those greenbacks back to pounds.

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With all this in mind, some investors try to position their holdings to benefit from currency swings. Yet because the movements are so unpredictable, experts generally advise against it.

Instead, there are two main ways for UK investors to get exposure to currencies like the dollar. One is to own US shares directly. Another is to buy UK shares that have substantial businesses across the Atlantic.

Buying and holding foreign shares has got much easier in recent years, although it does carry some exchange rate risk. That is because you have to exchange pounds for foreign currency, and back again, when buying and selling them.

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By contrast, owning UK shares with big sales in foreign markets doesn’t carry the same uncertainty. It also means you can take advantage of the UK’s secret weapon when it comes to companies with international exposure: the FTSE 100 index.

An intriguing observation in markets over the past year has been the resilience of UK blue-chips. The main index is currently down by just 1%, which compares well to the 17.7% decline seen on America’s S&P 500.

Part of the FTSE’s strength has been down to the performance of blue-chip energy shares like BP (LSE:BP.) and Shell (LSE:SHEL). These stocks have soared on strong oil and gas prices. But they have also benefited from those commodities being priced in dollars.

It’s not just energy companies either. An estimated 75% of FTSE 100 revenues are earned in territories outside the UK - so the index is a useful place to look for currency diversification.

This screen shows some of the best-performing shares across different industry sectors in the FTSE 100 over the past 12 months that derive substantial revenues in America.

In terms of price strength, all five companies have seen their shares outperform the FTSE 100 index over the past year. BAE Systems (LSE:BA.), British American Tobacco (LSE:BATS), Pearson (LSE:PSON), Compass Group (LSE:CPG) and Diageo (LSE:DGE) all have substantial sales in foreign markets, in particular the US, and all report their financial results in sterling.

Given their international exposure, these firms are well used to explaining to shareholders how exchange rates impact on revenues. Given the recent slide in the value of the pound against the dollar, they may well now benefit.

As an example, defence company BAE derived 43% of its sales in the US in 2021. Together with a likely boost to sales as a result of increased defence spending in the west, the company looks well placed to benefit from the strong dollar.

Another is Compass, the food services business, which has a substantial US business that accounts for 62.4% of sales. Like many companies, Compass uses hedging to try and smooth out exchange rate effects over time, but the strengthening dollar is still likely to play in its favour.

Ben Hobson is a freelance contributor and not a direct employee of interactive investor.