The global markets have been surging in 2012. While there are still major issues facing the economy, there has been some positive data and signs that the worst case scenario is not going to play out. Most would think that, with the Greek situation still unresolved, the stock market in Athens would be a great place to lose money. Instead, the stock market in Greece has outperformed other markets with a gain of about 17% for the first weeks of 2012. Other European markets have also fared well. This is an indicator that European stocks are just too cheap, and that the sell-off has been overdone. It's probably time to start turning cautiously bullish and many top analysts are finding bargains in Europe. A recent CNBC article details the bullish view that the Chief Investment Officer of Goldman Sachs currently has for European equities and it states:
"But it looks to us like European equities are already discounting a lot of bad news," she added. "Typically, European equities trade at about a 30 percent discount to U.S. equities; they're now at a 50 percent discount. And when you look at the major multinational companies in Europe, these are world-class brands" in such sectors as luxury consumer, automobile, and energy. "If one can buy them at such a discount, to us it seems an allocation to European equities at this point makes a lot of sense," she said.
Here a some top European stocks that are trading way below the 52-week highs. Through a combination of dividends and capital appreciation, these stocks could provide total returns of about 100% in the next couple of years:
France Telecom (FTE) is a leading telecommunications company, based in France. This company offers a wide range of services such as Internet, mobile phones, and it operates in France, Spain, Poland and other countries. Even if the economy in France and other European countries remains weak, the services provided by France Telecom are basic needs for most consumers. In tough times, people might eat less often at restaurants, but they are not likely to cancel their mobile phone or Internet service. While it might be hard for this stock to double in value in the next 2 to 3 years, it could easily go back to the 52-week high, which is nearly $24 per share. When you combine that plus the dividend payments for the next couple of years, doubling your money in this stock becomes a possibility.
Here are some key points for FTE:
Current share price: $15.28
The 52-week range is $14.50 to $23.70
Earnings estimates for 2011: $1.93 per share
Earnings estimates for 2012: $1.81 per share
Annual dividend: about $1.37 per share, which yields 9%
Banco Santander (STD) is a major banking and financial services company, which is based in Spain. The negative headlines about the European debt crisis has punished this stock. Furthermore, Spain is facing extremely high unemployment rates, which are hovering around 24%. However, this company is expected to remain solidly profitable. This stock looks undervalued based on the book value which is $10.53 per share. Also, the price-to-earnings ratio is only at about 8 times earnings. Over the next 2-3 years, investors could see dividend payments of about $1 to $1.50 and the stock could rebound to about $14 per share. This would just about provide total returns of nearly 100%.
Here are some key points for STD:
Current share price: $8.42
The 52-week range is $6.77 to $12.70
Earnings estimates for 2011: $1.04 per share
Earnings estimates for 2012: $1.19 per share
Annual dividend: 47 cents per share, which yields about 5.6%
Telefonica SA (TEF) provides mobile communications services including voice, data, Internet, etc., and is based in Spain. This company also provides telecommunication services in Latin America and those economies remain very strong. This gives Telefonica some diversification and growth potential. Buying this stock now could double your money if the stock rebounds close to the 52-week high and if you add in the significant dividend payments over the next 2-3 years.
Here are some key points for TEF:
Current share price: $17.70
The 52-week range is $16.53 to $27.31
Earnings estimates for 2011: $1.75 per share
Earnings estimates for 2012: $2.20 per share
Annual dividend: $1.69 per share, which yields about 9.5%
Veolia Environnement (VE) is a provider of water, recycling, environmental services, waste collection and processing, etc. This company is based in France but it operates in a number of countries. This stock is trading for about one-third of the 52-week high and it has significant long-term rebound potential. However, the company is facing lower than expected earnings, shareholder lawsuits, and a possible dividend cut. In spite of all this bad news, the combination of the dividend payments and some stock appreciation over the next 2 years could easily double your money from these low levels. Because of the many challenges, I would only buy on dips and average into this stock over time.
Here are some key points for VE:
Current share price: $12.46
The 52-week range is $10.11 to $33.86
Earnings estimates for 2011: 63 cents per share
Earnings estimates for 2012: $1.04 per share
Annual dividend: $1.47 per share, which yields about 11.8%
Total SA (TOT) is a leading integrated oil company with operations which include refining, exploration, and service stations. This company is based in France, but it has projects all over the world. The price of oil has been resilient even as the global economy has appeared to stumble at times. In the next couple of years, oil is likely to climb significantly as the global economy rebounds. A sustained rise in oil prices to over $125 per barrel is possible by 2014, and this would lead to much higher profits for Total. In 2008, Total shares traded at about $90, and a return to this level, combined with solid dividends, could equate to 100% gains in the next couple of years.
Here are some key points for TOT:
Current share price: $54.22
The 52-week range is $40 to $64.44
Earnings estimates for 2011: $7.10 per share
Earnings estimates for 2012: $7.01 per share
Annual dividend: about $2.51 per share, which yields about 4.6%
Barclays PLC (BCS) is a banking and financial services company, based in the United Kingdom. Like almost all European banks, Barclays recently traded at extremely low levels, but it has already started to rebound. The recent surge looks like a short covering rally and the stock appears to be ahead of itself. Because of this, it makes sense to wait for a significant pullback to $12.50 per share or less. In the long term investors could easily see major gains as the stock appears undervalued based on book value, which is $27.32 per share. This stock should be able to reach $24 per share in the next couple of years, and investors who buy on dips at around $12.50 are likely to be rewarded with a possible double in the future.
Here are some key points for BCS:
Current share price: $15.10
The 52-week range is $8.38 to $21.69
Earnings estimates for 2011: $1.61 per share
Earnings estimates for 2012: $1.14 per share
Annual dividend: 25 cents per share, which yields about 1.7%
ING Group NV (ING) is one of the largest banks in Europe. This company is based in the Netherlands and provides a broad range of financial services and products. This stock does not have the large dividend payment that many other European stocks currently offer. However, these shares might be able to double in value through capital gains alone in the next couple of years. This stock has a book value of $16.53 per share, and a price to earnings ratio that is only about 5 times earnings. Both of these metrics indicate this stock is extremely undervalued. This stock should be able to grow book value to about $20 per share in the next couple of years and by that time the stock should be able to trade at that level as well. This would provide returns of about 100% from current levels.
Here are some key points for ING:
Current share price: $9.84
The 52-week range is $5.80 to $13.41
Earnings estimates for 2011: $1.78 per share
Earnings estimates for 2012: $1.64 per share
Annual dividend: none
Data sourced from Yahoo Finance. No guarantees or representations are made.
Disclosure: I am long FTE, TEF.
Disclaimer: 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.