Seeking Alpha
Profile| Send Message|
( followers)

The European financial crisis is still looming over the markets, depressing equities based in the old continent. Contrarian investors - I am one of them - are taking advantage of the current situation and buying stocks of companies such as Banco Santander (STD) - which I discussed here - and Telefonica (NYSE:TEF), which Mr. Market considers very unsafe bets given the current dire situation in Spain.

If you are not interested in taking unnecessary risks, Europe may still present you with good profit opportunities.

What follows is a list (in alphabetical order) of safe European businesses that are trading at interesting valuations and offering good dividend yields.

First some quick definitions

P/E ratio: the price-to-earnings ratio is is a measure of the price paid for a share relative to the annual profit earned by the firm per share. Usually stocks with high earning growth are traded at higher P/E values and vice-versa, but that's not always the case.

Interest cover ratio: it is a measure of a company's ability to honor its debt payments. An interest coverage ratio below 1 indicates the company is not generating sufficient revenue to satisfy interest expenses.

ROE: The return on equity measures a firm's efficiency at generating profits from every unit of shareholders' equity (also known as net assets or assets minus liabilities). ROE shows how well a company uses investment funds to generate earnings growth. ROEs between 15% and 20% are generally considered good.

Dividend yield: expressed as a percentage, is the dividend paid per share, divided by the price per share. A high dividend yield can be considered to be evidence that a stock is under priced or that the company has fallen on hard times and future dividends will not be as high as previous ones. Similarly a low dividend yield can be considered evidence that the stock is overpriced or that future dividends might be higher.

Dividend payout ratio: also expressed as a percentage, is the fraction of net income a firm pays to its stockholders in dividends. The payout ratio indicates how well earnings support the dividend payments.

Market capitalization: is the total value of the tradable shares of a publicly traded company; it is based on a market estimate of a company's value, based on perceived future prospects, economic and monetary conditions.

Now to the list

Ahold NV (OTCPK:AHODF) is a major international retailer based in Amsterdam, Netherlands, and founded in 1887. In the U.S. it owns the Giant supermarket chain. It has a market cap of $13.7 Bil. - The P/E ratio is an interesting 10.6 - The ROE (5-year average) is good at 17.9%; the interest cover is 6; the dividend yield is 4.25% and the dividend payout is a safe 45%.

Aurubis AG (OTC:AIAGF), headquartered in Hamburg, Germany, is the largest copper producer in Europe (the second largest in the world) and the largest copper recycler worldwide. It has a market cap of $2.5 Bil. The P/E ratio is very low at 5.2 - The ROE (5-year average) is good at 17.7%; the interest cover is 13.46; the dividend yield is 2.9% and the dividend payout is very safe at 15%.

BASF SE (OTCQX:BASFY), founded in 1865 in Ludwigshafen, Germany, is the largest diversified chemical company in the world. It comprises subsidiaries and joint ventures in more than 80 countries in Europe, Asia, Australia, Americas and Africa. The company is currently expanding its international activities with a particular focus on China. It has a market cap of $79 Bil. The P/E ratio is low at 9.6 - The ROE (5-year average) is good at 19.8%; the interest cover is 16.3; the dividend yield is 3.8% and the dividend payout is safe at 37%.

Brembo SpA (OTC:BRBOF), founded in Bergamo, Italy, in 1961, is a manufacturer of automotive brake systems, especially for sports cars and motorcycles. Brembo brakes are also used by many Formula One teams and the majority of MotoGP teams use their brakes. It delivered a better-than-expected 2011 bottom line. It has a market cap of $720 Mil. The P/E ratio is 12.6. The ROE (5-year average) is 13%; the dividend yield is 3.6% and the dividend payout is safe at 45%.

Enel SpA (OTCPK:ENLAY), is an Italian multinational electric utility company, the third-largest in Europe by market capitalization. It was founded in Rome in 1962. I suggested buying Enel in March, and although the stock price has gone down a further 13%, I still think it is a good long-term opportunity, even more at these prices. It has a market cap of $31 Bil. The P/E ratio is compelling at 5.7. The ROE (5-year average) is good at 16.5%; the interest cover is 2.1; the dividend yield is 10.3% and the dividend payout is safe at 60%. The stock is being battered because the board plans to reduce the payout ratio to 40% in order to cut outstanding debt, so the dividend may be lowered.

Eni SpA (NYSE:E), founded in 1953 in Rome, Italy, is one of the largest integrated oil and gas companies. I'm a long-time shareholder and made my case for Eni a few months ago. Today it announced better-than-expected results for the first quarter of 2012. It has a market cap of $88 Bil. The P/E ratio is low at 8.7. The ROE (5-year average) is fair at 15.9%; the interest cover is 3.3; the dividend yield is very good at 6.3% and the dividend payout is safe at 54%.

GDF Suez (GDFZY.PK) is a French multinational electric utility company, which operates in the fields of electricity generation and distribution, natural gas and renewable energy. It has a market cap of $53 Bil. The P/E ratio is low at 9.9. The ROE (5 year average) is 8.8%; the interest cover is 4.4; the dividend yield is high at 8.4% and the dividend payout is a somewhat unsafe 83%.

Michelin SA (OTCPK:MGDDF) is one of largest tire manufacturers in the world. In addition to the Michelin brand, it also owns the BFGoodrich, Kleber, Riken, Kormoran and Uniroyal (in North America) tire brands. It was founded in 1888 and its headquarters is in Clermont-Ferrand, France. The market cap is $13.3 Bil. The P/E ratio is very low at 7. The ROE (5-year average) is good at 13%; the interest cover is 10; the dividend yield is interesting at 3.8% and the dividend payout is very safe at 26%.

Siemens AG (SI) is a multinational conglomerate company with its headquarters in Munich, Germany. It is the largest European electronics and electrical engineering company, with activities in the fields of industry, energy and healthcare. The GE of Europe was founded in 1847 in Berlin. It has a market cap of $85 Bil. The P/E ratio is 9.7. The ROE (5-year average) is good at 17%; the interest cover is 4; the dividend yield is interesting at 4.2% and the dividend payout is quite safe at 40%.

Thales SA (OTCPK:THLEF) is a French company that designs and builds electronic systems and provides services for the aerospace, defense, transportation and security markets. It was incorporated in 2000, and its headquarters is in Paris. The market cap is $6.9 Bil. The P/E ratio is cheap at 9.9. The ROE (5-year average) is fair at 9%; the interest cover is very good at 16.6; the dividend yield is 3% and the dividend payout is a very safe 30%.

Disclosure: I am long E, OTCPK:ENLAY, STD.