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European stocks might appear unusually risky at this time, but with stock prices at extremely low valuations, the downside risk might now be limited. In fact, unless the worst-case scenarios play out, the next few months could be a once in a lifetime buying opportunity for European equities. Most, if not all eurozone countries appear headed for a recession, if they are not in one already. I would even say things will get worse before they get better for Europe's economy. However, a lot of bad news is priced into most European stocks. In fact, if you compare valuations of U.S. based multi-nationals to European counterparts, it becomes very compelling to buy European stocks.

We have already seen a few U.S. based companies warn that 2nd quarter earnings will not meet expectations due to Europe's economic situation and also due to foreign currency exchange. The weak Euro and strong dollar results in lower profits for U.S. companies. But it's actually positive for European companies to see a weak Euro, because revenues that are derived from the U.S. and other countries convert back into more Euros. This is one reason why export-heavy Germany is actually benefiting from the crisis. A German carmaker that exports is a lot better off when the Euro is at 1.23 rather than 1.60. But, an American company is likely to be harmed by the strong dollar. Furthermore, as earnings come in soon, we are likely to see that Europe and a slowdown in China will impact U.S. multinational companies. I believe that during this earnings season, more investors will realize that most large U.S. companies are not insulated from the European crisis and currency exchange rates.

While both European and U.S. companies with exposure to the market in Europe will suffer from economic weakness, the European ones will at least stand to benefit from the strong dollar/weak Euro. That's why it might be time to consider European stocks, because the valuations are much lower and the yields are much higher. Since the crisis continues in Europe, it makes sense to buy on dips and average in over time. Here are a few European stocks with generous dividends and low valuations:

Sanofi-Aventis (NYSE:SNY) shares appear to have found support around the $35 level, but it has recently dipped to about $34, so waiting for short-term pullbacks could reward patient investors. This company is based in France and it develops and markets pharmaceuticals and vaccines. It has some blockbuster drugs including Ambien, and Plavix. Warren Buffett has found value in this stock and his investment company holds about 3.9 million shares of Sanofi-Aventis. For dividend investors, this stock is ideal because it yields about 4.6%, and historically, the dividend has been rising. In 2006, it paid 96 cents per share, but in 2011 the payout reached $1.76 per share. Since this company sells its products globally, it is diversified beyond Europe, and it can benefit from a weak Euro currency.

Here are some key points for SNY:

  • Current share price: $36.89
  • The 52 week range is $30.98 to $40.02
  • Earnings estimates for 2012: $3.90 per share
  • Earnings estimates for 2013: $3.89 per share
  • Annual dividend: about $1.69 per share which yields about 4.6%

Telefonica SA (NYSE:TEF) shares have taken a beating over the last few months. Since Telefonica is based in Spain, it has led to investor concerns over the weakening economic outlook and rising unemployment. However, if any company can survive and eventually rebound, it might be this one since it provides voice, data, and Internet communication services. These types of services are basic needs for many consumers, and even a must-have for most people looking for work. A major positive is that Telefonica also provides communication services in a few Latin American countries which have stronger economies when compared to Spain. This gives the company diversification and growth potential. It also means it could benefit from the weak Euro when revenues from Latin America are converted. One risk to consider is that Telefonica does carry a significant debt load of about $83.6 billion and it has cash levels of around $9.96 billion. If debt markets worsen in Spain this company might have to pay higher interest rates. Because of this, it makes sense to average in on pullbacks and only take a smaller position. If Spain does recover in the next few years, those who buy now could be looking at major gains and strong dividend income.

Here are some key points for TEF:

  • Current share price: $12.17
  • The 52 week range is $10.90 to $23.64
  • Earnings estimates for 2012: $1.65 per share
  • Earnings estimates for 2013: $1.86 per share
  • Annual dividend: $1.34 per share which yields about 11%

ABB Limited (NYSE:ABB) shares are trading near 52-week lows, and this appears to be a solid buying opportunity. ABB is a major industrial company that designs and manufactures electrical, automation and other products. This company is based in Switzerland, but it sells to many countries around the world which gives it some diversification outside of the eurozone. Furthermore, many of ABB's customers are in stable industries like utilities, airports and railroads, etc. This means it could be better positioned to ride out a recession in Europe, when compared to other companies. It has a solid balance sheet with about $7.59 billion in cash and $6.18 billion in debt. With the shares now trading at about 11 times earnings, and offering a yield that is nearly double the average of the S&P 500 Index, it looks like a good time to start accumulating.

Here are some key points for ABB:

  • Current share price: $16.11
  • The 52 week range is $15.26 to $26.39
  • Earnings estimates for 2012: $1.47 per share
  • Earnings estimates for 2013: $1.72 per share
  • Annual dividend: 70 cents per share which yields 4.3%

BP PLC (NYSE:BP) shares look very undervalued when compared to the U.S.
based oil majors like Exxon (NYSE:XOM). While BP is still in the midst of resolving claims and remaining liabilities from the oil spill in the Gulf of Mexico, it has made substantial progress and the challenges appear manageable. Exxon shares suffered when the Exxon Valdez spill occurred in Alaska, but that is a distant memory now. Once the spill in the Gulf is a distant memory, BP shares will probably be much higher. When you consider that BP shares yield almost twice as much as Exxon, and trade for just about 6.5 times earnings, while Exxon trades at about 10 times earnings, it's hard not to like BP. Since this company could still have headline risk from the European debt crisis, declining oil prices, and the spill, it makes sense to buy on dips and hold for the generous dividend yield of about 5%.

Here are some key points for BP:

  • Current share price: $39.63
  • The 52 week range is $33.62 to $48.34
  • Earnings estimates for 2012: $6.04 per share
  • Earnings estimates for 2013: $6.07 per share
  • Annual dividend: $1.92 per share which yields about 5%

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.