European stocks have performed poorly as of late, and the weakness is likely to continue. The problem is that European leaders are having a hard time agreeing on any solutions, and they have taken a gradualistic approach. It seems that every time one issue appears solved, a new one appears. Even though there appears to be value in many European stocks, earnings estimates could be too high, and a major recession could be coming in 2012. There is one catalyst that could send European stocks lower and perhaps provide a buying opportunity. Ratings agencies have been recently warning of possible credit rating downgrades. If we see a ratings downgrade for a country like France, or Italy, markets could plunge. It's hard to say how much stocks could fall if a downgrade arrives since many investors believe it's just a matter of time before a downgrade occurs. This means it might already be at least partially priced in to the market. The chance of a downgrade looks more likely than ever and it was recently summed up in an article which stated:
"France is the AAA-rated eurozone economy most likely to be downgraded later this month, according to the consensus view among analysts. The view comes following the French 10-year bond auction this morning, which saw almost €8 billion (£6.6 billion) sold, with a yield of 3.29%, up from 3.18% in the last auction in December. At midday, 10-year French bonds were yielding 3.34%, up 0.05%." Read the article here.
Below, is a closer look at European stocks that are likely to drop and create a potential buying opportunity, if and when a major European country experiences a credit rating downgrade:
Vodafone Group PLC (VOD) provides mobile communications services including voice, data, Internet, etc., and is based in Europe. About 75% of Vodafone's revenues are derived from Europe, so a significant market decline or recession would probably impact revenues and the stock value. The book value is $25.68 and the stock recently dipped to about $26. In the event of a major market decline, it's likely this stock will provide investors with another buying opportunity at $26 or less.
Here are some key points for VOD:
- Current share price: $27.76
- The 52 week range is $24.31 to $29.75
- Earnings estimates for 2011: $2.64 per share
- Earnings estimates for 2012: $2.85 per share
- Annual dividend: about 97 cents per share which yields 3.4%
Veolia Environment (VE) is based in France and is a leading provider of water, recycling, environmental services, waste collection and processing etc., with operations worldwide. Veolia stock has been in a major downtrend due to a number of issues. Recently, a number of law firms have announced shareholder lawsuits against Veolia and this is putting more pressure on the stock. In spite of these negatives, the stock has value and the shares are trading for about a third of the 52 week high, so it could rebound if you are a patient investor.
Here are some key points for VE:
- Current share price: $10.59
- The 52 week range is $10.15 to $33.86
- Earnings estimates for 2011: 87 cents per share
- Earnings estimates for 2012: $1.24 per share
- Annual dividend: $1.47 per share which yields about 12.8% (however, a dividend cut is likely soon)
Total SA (TOT) is a major integrated oil company, based in France with operations worldwide which include refining, exploration, and service stations. Total already is one of the best values in the oil sector. It trades at a very cheap price to earnings ratio of about 7, and pays a strong dividend. Total derives most of its revenues from Europe, and the stock has downside risk if European markets drop or a major recession ensues. However, any major drop in this stock looks like an excellent buying opportunity.
Here are some key points for TOT:
- Current share price: $51.21
- The 52 week range is $40 to $64.44
- Earnings estimates for 2011: $7.07 per share
- Earnings estimates for 2012: $6.97 per share
- Annual dividend: about $2.75 per share which yields about 5.2%
Sanofi-Aventis (SNY) is a pharmaceutical giant and based in Paris, France. These shares have been slowly trending higher but still offer value. It now trades for about 7 times earnings and the dividend pays investors to wait for higher prices. If European markets see a major decline , investors could get another chance to buy Sanofi shares at around $32.50, which is where it seems to be finding strong support.
Here are some key points for SNY:
- Current share price: $35.73
- The 52 week range is $30.98 to $40.75
- Earnings estimates for 2011: $4.58 per share
- Earnings estimates for 2012: $4.03 per share
- Annual dividend: about $1.32 per share which yields about 3.6%
France Telecom (FTE) is a major telecommunications company, based in France. This company offers a wide range of services such as Internet, mobile phones, and more. This company does have operations and revenues coming from countries outside of Europe as well, and that could help mitigate any pressures from a weak European economy. The yield is very generous and looks solid, so buying dips makes sense for long-term investors.
Here are some key points for FTE:
- Current share price: $15.19
- The 52 week range is $15.09 to $23.70
- Earnings estimates for 2011: $1.91 per share
- Earnings estimates for 2012: $1.79 per share
- Annual dividend: about $1.37 per share which yields 8.5%
Telefonica SA (TEF) provides mobile communications services including voice, data, Internet, etc., and is based in Spain. Telefonica is based in Spain, it also derives significant revenues from Latin America which is seeing a stronger economic growth and growth potential. Even if the economy gets worse in Europe, communications and mobile phones will probably see a limited downturn. This means any major dips are likely to be opportunities to accumulate.
Here are some key points for TEF:
- Current share price: $16.86
- The 52 week range is $16.56 to $27.31
- Earnings estimates for 2011: $1.74 per share
- Earnings estimates for 2012: $2.20 per share
- Annual dividend: $1.69 per share which yields about 9.5%
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.