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A Strong Dollar Could Undermine These 3 Stocks With Massive Overseas Revenue

Two are household names, and the entire trio could see their results dinged by a greenback that continues to rise against foreign currencies.
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Over the past year the U.S. dollar has been one of the hottest currencies in the world. This week alone, the greenback reached a 20-year high against the euro and a 2-year high against the Japanese yen.

The following chart shows the dollar's dominance over a basket of currencies that includes the euro, yen, British pound and Canadian dollar.

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Source of charts: TradeStation

As a result, we're seeing the most favorable exchange rates for U.S. citizens in years. Travel enthusiasts are salivating at the possibilities and are planning trips to Tokyo, Barcelona and London.

How the strong greenback affects the U.S. stock market is another matter. U.S. companies that enjoy robust sales overseas are the ones most likely to suffer a negative impact.

Here are three names that are on my watchlist for a case of dollar-strength blues:

Microsoft

In early June, Microsoft (MSFT) warned that the strong dollar could subtract $460 million from its revenue. Since then, the dollar has exploded higher, gaining an additional 6.7%. That's a big move in the world of currencies.

Interestingly, Microsoft's chart looks like the inverse of the dollar:

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Alphabet

According to statista.com, only 46% of Alphabet's (GOOGL) revenue is generated in the U.S. while 30% comes from Europe, the Middle East and Africa. This has been the case for at least the past seven years.

Alphabet's chart could be forming a triple-top continuation pattern (curved lines). This formation suggests a drop to $1,850 could be on the cards for the tech giant.

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MongoDB

Enterprise software maker MongoDB (MDB) receives about 40% of its revenue from overseas. This stock has already lost 44% year to date and has spent the past eight months locked in a bear channel.

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Why is the U.S. dollar so strong? Consider that the Federal Open Market Committee is aggressively raising interest rates, while the European Central Bank's key interest rate remains at zero. The disparity in both rates and forward guidance helps generate a flow of capital out of Europe and into the U.S.

Another reason is the greenback's status as a safe haven. Why would investors feel the need for safety?

The U.S. could already be in a recession and both the S&P 500 and Nasdaq 100 are in bear market territory. Meanwhile, the Fed is committed to raising rates as inflation as measured by the Consumer Price Index remains at a 41-year high. The markets may climb a wall of worry, but this looks more like a mountain.

(GOOGL and MSFT are holdings of Action Alerts PLUS. Want to be alerted before the portfolio buys or sells these stocks? Learn more now.)

At the time of publication, Ponsi had no positions in the stocks mentioned.