Monday’s market brought a reminder on how volatile the markets can be and gives a preview of the increasing turbulence I expect to see over the summer in equities. Yesterday’s trigger was S&P’s announcement of a possible future downgrade of U.S. sovereign debt if we do not get serious about our fiscal problems. Other major concerns out there are rising inflation and gas prices, continued Middle Eastern turmoil, a slowdown in Japan’s growth and the negative impact to the supply chain due to the tragedies there, growing European debt issues, the coming end of QE2 and a growing Chinese property bubble; just for starters. Given all the current news flow, I am extremely cautious here. I am keeping a decent amount of my portfolio in cash and some other assets in the TBT ETF, as I believe interest rates have nowhere to go but up in the medium and long term. Those equity investments I am making are in large blue chip companies with solid prospects and good dividends. I am also using a buy/write strategy using call options 3-6 months out as I believe the market is dead money at best over that time span and I want to generate additional premium and lower volatility in my portfolio to some extent. To provide international diversity I am looking at four European stocks that meet these criteria and that you may want to consider:
Novartis (NVS) – A continued favorite of mine. NVS is a leader in pharmaceuticals and generic drugs. It is selling at a little over 10 times this year’s earnings and little under 10 time earnings expected in 2012. It yields a solid 3.6% and the company has raised its dividend over 150% over the last five years. It also has had an average EPS growth over the last five years of 11%. Finally, it is trading at lower half of its five year range measured by P/E, P/S, and P/CF.
Prudential (PUK) - Prudential Plc provides retail financial services in Asia, the United States, and the United Kingdom. It offers savings, protection, investment, and unit-linked products; and manages retail assets investing in equities, fixed income, and structured products, as well as institutional and internal assets investing in equities, fixed income, property, and private equity. It is growing rapidly in Asia. Its valuation is modest at less than 12 times this year’s earnings and 11 times next year’s consensus. Prudential yields a generous 4.6% dividend yield. It is also trading at lower half of its five year range measured by P/E, P/S, and P/CF.
Telefonica (TEF) – Currently my favorite telecom stock. Telefonica is selling at roughly 10 times both this year’s and next year’s projected earnings. It yields a rich 5.5% dividend yield. It continues to be hurt by problems in Spain. However, its business and prospects in Latin America more than offsets those concerns. It is taking market share from its main competitor in Brazil and Mexico. Its subscriber base in Latin America is expected to hit 340mm by 2013, which is an approximate 20% increase over 2010 levels. It also recently reaffirmed its commitment to maintain its dividend in 2012. Finally, TEF is trading at lower quartile of its five year range measured by P/E, P/S, and P/CF.
Total (TOT) - TOTAL S.A., together with its subsidiaries, operates as an integrated oil and gas company worldwide. The company operates through three segments: Upstream, Downstream, and Chemicals. It sports one of the cheapest valuations among large cap equities that I have seen. It is selling for less than 8 times this year’s earnings and less than 7.5 times next year’s consensus. It yields 4.4% and will be even more attractive to dividend investors once it moves to paying dividends quarterly in September of this year. It is also trading at lower half of its five year range measured by P/E, P/S, and P/CF.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NVS, TEF over the next 72 hours.