5 French Stocks With Great Upside Potential

by: Efsinvestment

Edited by Fanny Kelesidou

The latest elections in France have signaled an ongoing shift in Europe's approach toward combating the crisis. The election of socialist Francois Hollande, a great supporter of more growth-generating economic policies, led in mixed results. At first, many analysts were concerned that the latest elections' outcome in France would upset the balance in European policies. This was reflected in the markets' reaction following the French elections. The next day the CAC 40 index, which is the Paris stock exchange index, dropped 1.52 percent. The euro fell to historical low levels against the sterling pound. French equities were also negatively affected. Overall, investors appeared nervous about a eurozone economic policy switch from austerity to growth.

I believe that the markets' reaction was exorbitant. Up until now, the policy of restrict fiscal discipline and spending cuts imposed by Angela Merkel has had no positive results. The uncertainty over the future of the eurozone is still prevalent. Moreover, European countries, especially Greece, keep suffering from severe financial distress. Austerity alone has not worked, and Europe is in need of a more effective strategy for economic growth. Francois Hollande is proposing a supply-side approach to growth. His main idea is that the EU must combine budgetary discipline with a complementary growth package. This new approach is going to initiate a whole new era, not just for France, but for the EU, as well.

Recently, the European Central Bank announced the launch of a sovereign bond purchasing program. Skeptics are certain that the program is damned to failure by fueling inflation. However, the ECB has ensured that any purchasing will be fully sterilized. I personally believe that this was the boldest step the ECB has ever made in order to address the crisis. The French government, as well as Italians and Spanish, are reassured that their borrowing costs will be kept under control. In addition, global stock and debt markets responded positively to the program. Soon after the announcement, the Dow reached its highest point since December 2007. In general, I support the notion that France is going to benefit from a policy shift. Even though, at the moment the French economy seems to suffer from chronic issues, there is optimism on the horizon. France is one of the largest industrialized economies and hosts some of the world's leading corporations. Right now, France might be one of the best places to look for cheap stock deals. Here, I review five stocks that make an intriguing case for curious investors.

Total SA (TOT) - Watch for upside potentials

Total is one of the world's greatest oil and gas companies. The company operates in more than 130 countries and has a market cap of almost $130 billion. What distinguishes the company from its peers is the high dividend yield. Total has a dividend yield of 4.40 percent along with a payout ratio of 41.00 percent. Total's main competitor, Exxon Mobile (NYSE:XOM), offers a yield of just 2.50 percent. In addition, the company has a gross profit margin of 34.09 percent. Debt-to-equity ratio is 0.46, which is much lower than most of its peers. Currently, the stock is trading around $50. One-month stock returns and one-year stock returns are equal 9.46 percent, and 20.38 percent, respectively. At the moment, the stock is trading way below analysts' target prices. The mean target price of $59.61 and the high target price of $68 suggest upside potential of about 8 to 25 percent. I suggest taking a closer look at Total SA, as I expect it to follow an upward pace.

Sanofi (SNY) - Buy

Sanofi is a Paris-based healthcare company, which was formed in 2004. The past week SNY was upgraded from a C (hold) to a B (buy). Not unjustified. The stock is trading at $44. Over the last month, the stock price has increased by 5.4 percent. One-year stock returns stand at 30.54 percent. In addition, SNY yields 3.90 percent and has a payout ratio of 48.00 percent. The company has a gross profit margin of 67.37 percent, which suggests high profitability prospects. The price-to-earnings ratio of 13.65 may suggest that the stock is quite expensive. However, most of the company's major peers are trading at higher valuations. For example, Pfizer Inc (NYSE:PFE) has a price-to-earnings ratio of 17.84. Overall, I strongly suggest that Sanofi is offering a unique opportunity for investment gains.

France Telecom (FTE) - Buy

With a market cap of $37 billion, France Telecom is among the largest telecommunication companies in Europe. The company engages in fixed telephony, mobile telecommunications, internet, data transmission and multimedia services. The mean analyst target price is $17.00. The current stock price of $13.98 is considered to be a great bargain. The stock is trading at attractive valuations. The price-to-earnings ratio is 7.40, while the industry's same variable is 9.60. Moreover, price-to-book value ratio and price-to-sales ratio stand at 1.07 and 0.63, respectively. The company offers a dividend yield of 11.90 percent with a payout ratio of 86.00 percent. Certainly, France Telecom is among the top dividend stocks in the business.

Veolia Environnement (VE) - Buy

Veolia carries a long tradition. It was founded in 1853, at the start of the industrial era in Europe. It is one of the largest companies in France operating in the environmental recycling, water treatment, energy and transportation segments. Even though, historical data on Veolia's performance are not so compelling, analysts seem to have faith in the company. Thirty percent of analysts' estimations suggest that the stock will be outperforming in the immediate future. At the moment, Veolia shows a decent financial performance. Current ratio stands at 1.20, which is higher than the industry's average of 1.10. Moreover, Veolia offers a yield of 6.60 percent, which again, is higher than the industry's average yield of 4.40 percent.

Alcatel Lucent (ALU) - Buy

Alcatel Lucent is one of the most known companies in the business. It is considered to be one of the largest communication equipment providers in the world. This technology giant has more than 25 wholly owned subsidiaries all around the globe. The company maintains a portfolio of more than 27,900 active patents. In addition, Alcatel-Lucent owns Bell Labs, which is globally recognized as one of the greatest innovation and R&D facilities. Currently, at the price of $1.27, the stock is trading much lower than its heyday valuation. During 2012, the stock has been following a downward pace. Also, the debt-to-equity ratio might suggest that ALU is a risky investment. However, as I expressed in a previous article, the "Broadband China" initiative is going to alter the company's financial position. Moreover, at the current single-digit P/E ratio, I strongly believe that ALU offers a great bargain.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.