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While the U.S. stock market is at the very least fairly valued, in Europe there is still some value to find. Interestingly, three of Warren Buffett's major foreign holdings can be bought at very reasonable prices and two of them even slightly cheaper than he did. All these three stocks pay relatively high dividend yields and have a long and stable dividend history which makes them perfect fits for income and retirement portfolios.

U.S. investors often concentrate on the stocks included in quarterly SEC filings, but Berkshire Hathaway (BRK.A) (BRK.B) also invests billions abroad. The only way to find out about these holdings is the annual report:


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On 12/31/12 the three stocks Sanofi (SNY) (OTCQB:SNYNF), Munich Re (OTCPK:MURGY) (OTCPK:MURGF) and Tesco plc (OTCPK:TSCDY) (OTCPK:TSCDF) had a total market value of $8.5 billion, which even for Berkshire is quite a big chunk of money. So it might probably pay off to take a closer look.

Munich Re

Buffett bought Munich Re not only for Berkshire, but also for his personal account. The holding became public at the beginning of 2010. Buffett paid about 90% of book value. Currently the stock trades slightly above book value which at first glance would seem a fair price for a diversified reinsurance company. However, as I will explain below, I believe that because of its increased profitability the company deserves to trade at a book value multiple of at least 1.3.

Muenchener Rueckversicherung (Munich Re) is one of the world leaders in reinsurance. Gross written premiums break down by activity as follows:

  • reinsurance (54.2%): non-life reinsurance (60.5% of gross written premiums) and life and health reinsurance (39.5%);
  • insurance (45.8%): life and health insurance (76.7% of gross premiums issued) and non-life insurance (23.3%). The activity is mainly carried out through Ergo Versicherungsgruppe.

The group is also involved in asset management (€11.5 billion assets under management at the end of 2012) through Meag Munich Ergo AssetManagement.

Gross written premiums break down geographically as follows: Germany (27.5%), Europe (25.5%), North America (32.3%), Asia and Australasia (9.6%), Latin America (3.1%) and other (2%).

In the years of the internet bubble Munich Re, like many insurance companies, did not focus on underwriting discipline and wrote a lot of unprofitable contracts. In 2003 the current CEO took over and little by little turned around the ship and could recently state that in the years to come the company will certainly release at least €500m per year from its reserves. Combined ratios have improved significantly and there is a clear focus on RoRaC (Return on Risk adjusted Capital).

The company has a progressive dividend policy in place and hasn't cut the dividend since 1969. Analysts estimate the 2014 dividend to yield about 4.5% on the current share price which corresponds to about 9 times EPS (2013 estimate).

Here is the dividend history (figures in euros) from the company website:

These figures refer to the original shares of the company . The ticker symbol MURGY refers to the ADRs and each ADR represents 1/10th of an original share.

If you want to know more about the company, take a look here.

Sanofi SA

Warren Buffett bought Sanofi mostly in 2007, then added heavily in 2009. As Berkshire bought also some ADRs, some holdings were reported in SEC filings. Thus we can find out that Buffett probably started buying between €60 and €64, which means (as he often stresses that he buys with a minimum margin of safety of 25%), that he saw an intrinsic value of at least €80, which at that time represented about 20 times free cash flow. Today, Sanofi trades at about 15 times estimated FCF for 2013.

Sanofi is the largest European pharmaceutical group. Net sales by family of products break down as follows:

  • pharmaceutical products (82.6%): for the treatment of cardio-vascular diseases, thrombosis, central nervous system disorders (insomnia, multiple sclerosis, epilepsy), cancers, allergies, etc. Moreover, Sanofi-Aventis markets OTC products and generic drugs;
  • human vaccines (11.2%): pediatric vaccines, vaccines for flu, meningitis, and polio, booster vaccines, and vaccines for travelers and endemic areas;
  • veterinary products (6.2%).

At the end of 2012, the group had 112 production sites throughout the world.

Net sales are distributed geographically as follows: France (8.1%), Europe (23.5%), the United States (31.8%), and other (37.3%).

Among big pharma companies, Sanofi is the one with the largest exposure to emerging markets. Having significantly more costs than sales in Euro, being long Sanofi is also a way to short the Euro. Over the last years the company has successfully restructured its operations in order to avoid too much reliance on blockbuster drugs in the future. Its earnings are projected to grow strongly in the years ahead, due to increasing healthcare spending in emerging markets and its very well positioned diabetes franchise.

The company has a progressive dividend policy in place and analysts estimate the 2014 dividend to yield about 3.8% on the current share price.

Here is the dividend history:


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These figures refer to the original shares of the company . The ticker symbol SNY refers to the ADRs and each ADR represents 1/2 of an original share.

If you want to know more about the company, take a look here.

Tesco plc

Tesco plc is the oldest of these 3 international holdings. Buffett started to buy Tesco in 2006 and then added to his holdings a few times. The last time he bought the stock he paid about 350 pence, which is almost 10% more than the current share price.

Tesco is the third biggest retailer of the world (by sales) with operations in the United Kingdom, the People's Republic of China, the Czech Republic, Hungary, the Republic of Ireland, India, Malaysia, Poland, Slovakia, South Korea, Thailand and Turkey. The Company also provides retail banking and insurance services through its subsidiary, Tesco Bank. Through Tesco Mobile (British no. 1) the group offers telephony services. Furthermore, Tesco in one of the most important on-line retailers in the UK.

Net sales break down geographically as follows: the United Kingdom (67.3%), Europe (15.2%) and Asia (17.5%).

The company is having a hard time due to the hard recession that has hit customers in the UK, Europe and more recently even in the Asian markets. However, there are a few basic facts to like about the business:

  • Profit margins far above average prove the extreme efficiency of Tesco's operations.
  • Management focuses on ROCE.
  • Progressive dividend policy.
  • Analysts estimate the 2014 dividend to yield about 4.5% on the current share price which corresponds to less than 10 times 2014 EPS estimates.
  • The value of its real estate properties alone would justify a higher share price.
  • Early mover in the space of online retailing.

Here is the EPS and DPS history from Morningstar:


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These figures in pence refer to the original shares of the company. The ticker symbol TSCDY refers to the ADRs and each ADR represents 3 original shares.

If you want to know more about the company, take a look here.

Recently I have written articles about Sanofi and Tesco, focusing on some specific aspects. If you are interested in investigating further, here are the links:

Source: 3 High Yielding Buffett Stocks Which Are Still Undervalued