The continuing unfolding crisis in Europe has knocked equities headquartered on the continent down to extremely low valuations. Many do not deserve these price levels given that they get a good portion of their revenues outside the eurozone and/or sell fungible commodities. Two with extremely high dividends (paying you to wait for the eventual turnaround in sentiment around Europe) and rock bottom valuations are below. Both are worth considering for long term, income orientated investors.
Eni SpA (E):
Eni SpA, an integrated energy company, engages in the exploration, production, transportation, transformation, and marketing of oil and natural gas. The company also involves in the production and sale of electricity; refining and marketing of petroleum products; and production and sale of petrochemical products and hydrocarbons. In addition, it engages in the offshore and onshore hydrocarbon field construction. (Business description from Yahoo Finance)
4 reasons why Eni is a solid long term buy at $39 a share:
- E is selling near the bottom of its five year valuation range based on P/E, P/B, P/CF and P/S.
- Eni yields over 7% at these price levels. It also has long term technical support at $35 (See Chart).
- It is dirt cheap at less than 4 times operating cash flow and just over book value.
- The stock is significantly under analysts’ price targets. The mean analysts’ price target on E is $54.
Telefonica, S.A. provides fixed and mobile telephony services primarily in Spain, rest of Europe, and Latin America. Its fixed telecommunication services include PSTN lines; ISDN accesses; public telephone; local, domestic, and international long distance and fixed-to-mobile communications; corporate communications; video telephony; supplementary and business-oriented value-added services; network services; leasing and sale of handset equipment; and telephony information services. (Business description from Yahoo Finance)
4 reasons TEF will reward long term investors at under $17 a share:
- Telefonica recently announced a dividend cut recently. The news hurt the stock, but the stock still yields just under 8% after cut. Although not good for the stock price in short term, it was a prudent cash flow move by management.
- Over two thirds of Telefonica’s revenues come from outside Europe, primarily fast growing Latin America.
- TEF is extremely cheap at less than 4 times operating cash flow and just 7.5 times forward earnings.
- The stock is selling at the bottom of its five year valuation range based on P/E, P/S and P/B. It also has grown earnings at a 17% annual clip on average over the past five years.
Disclosure: I am long E.