The April trade figures came out and they were not a pretty sight. The trade deficit jumped to its highest level in 13 months, coming in at a potent $60.9 billion for the month of April. This figure includes a $4.3 billion increase in crude oil imports, which jumped to a record $29.3 billion, as the average per-barrel price rose to an all-time high.

The deficit through the first four months of this year is running at an annual rate of $707.5 billion. That's up slightly from last year's deficit of $700.3 billion, which was a 7% drop from 2006. The improvement last year came after the trade imbalance set records for five consecutive years.

Many economists are looking for the deficit to shrink again this year as a sharp economic slowdown cuts into consumer demand for imports and the weak dollar helps to boost U.S. exports.

What does this mean for you and me? It all depends on your point of view. I have a friend who is not concerned at all. In his opinion, the trade deficit is a nonsense number in the first place. As an example, he looks at the "trade" deficit between companies.

He thinks, for example, the deficit between the auto manufactures and the tire companies is out of control. Here you have companies like General Motors (NYSE: GM, Stock Forum), Ford Motor Co. (NYSE: F, Stock Forum), and Toyota Motor Corp. (NYSE: TM, Stock Forum) "importing" huge quantities of products from the likes of Goodyear Tire (NYSE: GT, Stock Forum) and Bridgestone. GM, F, and TM export almost nothing to the tire companies. There is, therefore, a huge trade deficit from the point of view of the auto manufacturers, but they do not seem concerned in the slightest.  

The reason they are not concerned, he says, is because it makes sense to "import" these products. The expense of bringing these products in is far less than the cost to produce them internally. The same, he argues, is true of the U.S. trade deficit. It is simply more cost effective to import than produce most of these items. Whether this is good for our long-term stability is another issue, but for today, it holds true.

One of the side effects, or causes, depending on your point of view, of the trade deficit is a weak dollar. Because the dollar has lost some of its value as compared to other currencies, it is less expensive for some countries to import products from the U.S. than produce them domestically. With this in mind, it may not be a bad idea to have some companies with strong foreign sales in your portfolio.

This is especially true of companies with strong European sales. As an example, take the European unit of a large U.S.-based company which earns one million euros. That currently converts to about $1.5 million. If the dollar falls another 5% versus the euro, the company's euro income will be equal to $1.65 million – a boost to the bottom line based solely on the location of the business.

U.S. companies can also benefit from a falling dollar because it makes domestic goods and services cheaper for overseas buyers, encouraging them to go on shopping sprees for American goods. It also discourages U.S. consumers from buying imported goods, which become more expensive in dollar terms. This combination could offset losses due to a weak dollar with increased sales in U.S. markets.

There are a few companies that look like they could benefit from the current state of the dollar.

One such company is McDonald's Corporation (NYSE: MCD, Stock Forum). MCD develops, operates, franchises, and services a worldwide system of restaurants that prepare, assemble, package, and sell a limited menu of value-priced foods. The company operates primarily in the quick-service hamburger restaurant business. All restaurants are operated by the company or, under the terms of franchise arrangements, by franchisees who are independent third parties, or by affiliates operating under joint-venture agreements between the company and local business people. With restaurants in more than 100 countries around the world, the company is more than capable of taking advantage of fluctuations in the currency markets.

International Business Machines Corp. (NYSE: IBM, Stock Forum) is another company with operations around the world. The company operates primarily in a single industry using several segments that create value by offering a variety of solutions that include technologies, systems, products, services, software, and financing. Organizationally, the company's major operations comprise three hardware product segments as well as a Global Services segment, a Software segment, a Global Financing segment, and an Enterprise Investments segment. As a global leader, IBM is positioned to take advantage of fluctuations in the dollar against various currencies.

3M Co. (NYSE: MMM, Stock Forum) operates as a diversified technology company. The company sells its products directly, as well as through wholesalers, retailers, distributors, and dealers worldwide. Each of the company's seven businesses has earned leading global market positions. As a global leader, MMM is positioned to take advantage of fluctuations in the dollar against various currencies as well.

If you are looking for a hedged trade on MCD, you could look at the September 52.50/50 Bull Put spread for a 35 cent credit. That's a 16.3% return (60% annualized return for comparison purposes), and the stock has to fall 10.7% to cause a problem.

When looking for a hedged trade on IBM, consider the October 100/95 Bull Put spread for a 40 cent credit. That's an 8.7% return (25% annualized return for comparison purposes), and the stock would have to fall 19% to cause a problem.

For a hedged trade on MMM, you may want to look at the October 65/60 Bull Put spread for a 60 cent credit. That's a 13.6% return (39.2% annualized return for comparison purposes), and the stock has to fall 13.8% to cause a problem.

These trades, like all trades, are not without risk, so be sure any trade you enter fits your risk/reward profile. This is the stock market, so losses are always a real possibility. Be sure to do your homework on every trade and remember to have a little fun, too.

This week Investors Observer covers:

What Companies Benefit From Strong U.S. Exports And How Can Investors Play Them?

Articles:

* How Exports Just Might Bail Out the U.S. Economy + Lee’s take on EBAY, DIS, CFC, PG, and SBUX

* Hedging Against a Weak Dollar

* Can You Really Profit From The Trade Deficit?

* Who Wins When the Dollar Loses?

Click here to read any of these articles.

Vic Wisemann
Lead Analyst

Vic Wisemann is an equity option strategy analysts with Investors Observer. Mr. Wiseman manages several portfolios for the company and comments weekly on his insights, strategies, and tactics for playing the market to win.

DISCLOSURE: Mr. Wisemann owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he discusses in his articles.