"Nibble, nibble, little mouse, who is nibbling at my house?"

Nope. Not Hansel. Not Gretel.

I'm starting to nibble at the shares of euro exporters.

I don't think I can call a bottom in the euro -- $1.20? $1.14? Parity? And I am very certain that we're not going to witness anything like the end of the eurozone debt crisis in the next few weeks. But I think the odds are tilted enough in favor of euro exporters that it's time to start buying initial positions in the best-in-class companies.

In fact, my logic here doesn't depend on an end of the eurozone debt crisis or a quick recovery in the euro at all. I wouldn't mind seeing the euro continue to stumble even after I've made my buys.

You see, that's what I'm counting on.

Currency math

A continuing euro debt crisis works in favor of the stocks of euro exporters by reducing the prices that customers who buy in dollars, yuan, yen, pesos or reais pay. That means the decline in the euro from a $1.44 on July 26, 2011, to $1.21 on July 25, 2012, has made anything priced in euros almost 16% cheaper for anyone paying in dollars. That same trend has been at work for anyone paying in most of the world's currencies.

The eurozone debt crisis has been an equivalent of a 16% sale. And we all know what a sale can do for demand -- especially if a company is selling against competitors who aren't giving customers a similar price cut from a falling currency.

The euro debt crisis also works to inflate the revenue -- and thus the earnings -- of any company that collects dollars or yen or yuan from its customers and then translates those currencies back into euros on its income statement.

Image: Jim Jubak

Jim Jubak

Think of this as the flip side of a problem faced by McDonald's (MCD) and other U.S.-based, dollar-using companies. McDonald's has said that the strong dollar will cost it 21 cents or so in revenue per share in 2012. Well, euro exporters will pick up revenue per share as a result of the weak euro.

If you're a dollar-based (or yen- or real- or yuan-based) investor, the euro debt crisis has given you another boost: Your currency will buy more of a eurozone exporter's stock than it would have a month ago. It's not just that a weaker euro means you can buy more widgets with your U.S. dollars. You can also buy a bigger hunk of a euro exporter. And that would be true even if the stock in question hadn't plunged in price -- its euro price -- because of the euro debt crisis.

Some caveats:

  1. To take the biggest advantage of the effects of the euro debt crisis, you've got to buy the shares of companies that are priced in euros (or euro-pegged currencies, such as the Swiss franc and the Danish krone) and that do business in euros. You won't get the same effect if you buy companies priced in the Norwegian krone or the Polish zloty.
  2. Pay attention to where a company sources its products. You lose much (or at least some) of the pricing edge from a falling euro if the company is paying a higher price to source its product in stronger noneuro currencies. Don't make assumptions here. For example, until I did some digging, I assumed that Spanish retailer Zara, owned by Inditex, must be doing most of its sourcing outside Europe. That would drive up the prices that the company has to pay for the clothing it sells. It turns out that about 50% of Zara's sourcing is from Spain and 26% from elsewhere in Europe -- Portugal, for example. Zara will feel the full effect of the weaker euro when it sells in New York or Tokyo.
  3. The danger, of course, is that the eurozone debt crisis will escalate in a way that takes down the share price of even the strongest euro exporter. That's why you want to nibble now rather than go all in and why you want to buy shares of the best exporters. You're looking for exporters that are so good at what they do that trouble in their home markets will be outweighed by gains in export markets. For example, shares of Finnish elevator company Kone (KNEBV.FH in Helsinki), the fourth-largest elevator company in the world, are up 26.2% in the past 52 weeks.
  4. You're also betting that the global economy isn't about to head off a cliff. This play works only if you think that the U.S. and Chinese economies will be relatively stronger in the second half of 2012. That's my reading of the tea leaves. But if it isn't yours -- if you think the U.S. is headed back into recession and/or that China is headed for a hard landing -- then these aren't buys for you.
  5. As hard as it is to identify the best-in-class euro exporters, once you've found them, it can be just as tough to buy them. Some of the best trade only in the stock markets of their home countries. I've tried to list some picks that sell in New York. Don't assume you can't buy one of these stocks if it trades only in its home market. Online brokers have vastly improved their foreign desks, and it never hurts to ask.

Stocks and funds mentioned in this article include Luxottica Group (LUX), Groupe Danone (DANOY) and Jubak Global Equity Fund (JUBAX).