As the US dollar falls, is now the time to buy US shares?

Ongoing uncertainty around tariffs has caused the dollar to weaken against the pound. As a result, UK investors looking to buy US shares get more for their money than they used to. 

Investors might wonder whether this means now is the time to look at some US stocks. But while the currency shift is a genuine benefit, I think there are more important considerations.

Currencies

Currency fluctuations are one of those things that investors don’t usually pay much attention to. And a lot of the time, this is justified because the moves are too small to be meaningful.

There are some exceptions. One example is the 75% decline in the value of the Nigerian naira that has given Airtel Africa shareholders something to think about over the last five years. 

Generally, though, movements in currencies tend to be small and not worth considering. But the value of the US dollar against the British pound is down 8% in the last 12 months.

In effect, this means an 8% discount for UK investors looking to buy US stocks. And given the valuation gap between the FTSE 100 and the S&P 500, that sounds quite nice.

Individuality

Over the last year or so, the balance of my Stocks and Shares ISA has gradually shifted towards UK equities. That’s not deliberate, it’s just the way I’ve seen opportunities over that time.

I am, however, very much looking for opportunities to balance this out a bit. So I’m actively looking for opportunities across the Atlantic (as well as elsewhere) that look attractive. 

Unfortunately, I don’t have a particularly strong view on where the dollar is going next. So there is – from my perspective – a very real possibility it could work against me.

This risk notwithstanding, there are one or two US stocks that I think look attractive. And there’s one in particular that I’ve been buying.

Healthcare

Johnson & Johnson (NYSE:JNJ) is a stock I’ve just started buying in the last couple of weeks. In my view, it’s a rare example of a US equity trading at an unusually attractive valuation.

The big challenge facing the company at the moment is the US administration’s desire to reduce the amount the country spends on drugs. That’s a risk for pharmaceutical firms across the board.

Johnson & Johnson, however, might be less exposed to this than a number of its peers. It has a growing medical devices business that makes up around a third of its overall revenues.

Moreover, the company has a strong record of increasing its dividend each year. And analysts are expecting this to continue until at least 2027. 

Buying opportunities

While most of my buying lately has been UK-focused, I have added Johnson & Johnson shares to my portfolio recently. But this isn’t because of currency fluctuations – it’s because of what I see as the strength of the underlying businesses.

I’m not denying that the dollar weakening against the pound makes a difference to UK investors. However, I think there are more important things to consider when it comes to buying shares.

Sometimes stocks have listings in different currencies. In those situations, I prefer to eliminate the risk of shifting foreign exchange rates entirely. But that isn’t always possible, so it’s something I put up with for the right opportunity.

The post As the US dollar falls, is now the time to buy US shares? appeared first on The Motley Fool UK.

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Stephen Wright has positions in Johnson & Johnson. The Motley Fool UK has recommended Airtel Africa Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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