By Jonathan Burton, MarketWatch
Remember the “green shoots” that marked an early turning point for the U.S. economy? Those hopeful seedlings now seem to be taking root in Europe.
Investors are eagerly watching for further signs of growth, and though some observers caution that it’s too soon to be euphoric, the euro-zone’s second-quarter GDP result
early Wednesday could herald the beginning of the end of the region’s Draconian recession.
If your portfolio lacks international appeal and you want to know where to put money with Europe on the mend, take a look at these 10 stocks.
The German economy is currently the star of the euro-zone recovery story, and the country’s second-biggest lender, Commerzbank
, is poised to benefit.
The banking giant’s shares have been recovering recently after an upbeat earnings report.
“Positive news in shipping and at the investment banking division demonstrated that there is much potential in the company, and this should result in the share price recovering strongly as the German economy improves,” says Ronnie Chopra, head of strategy at Tradenext.
Specifically, consumer spending and growth in Germany, along with a stronger housing market are all factors that should help Commerzbank’s profitability, and subsequently the shares, he adds.
Economic improvement favors big euro-zone banks generally, and Societe Generale, with more than 80% of its business in Europe, is poised to benefit.
The French banking giant
has rebuilt its capital base, and its shares trade on a forecast P/E multiple of 8.4 times for 2014, notes Kevin Lilley, manager of Old Mutual European Equity Fund. Another hopeful sign is that the bank is again paying shareholder dividends.
“Its large market share, along with French loyalty to national champions, gives the bank pricing power,” adds Morningstar stock analyst Erin Davis in a recent research note.
But investors need to keep in mind that Societe Generale, like other euro-zone banks, still faces hurdles. “While SocGen’s results are improving, we still see don’t see it as best-in-class,” Davis observes. “Unless SocGen’s results exceed management’s projections materially, the bank is likely to continue to trade at a discount to book value.”
The European car market has been in a ditch. Vehicle registrations in Western Europe are down 24% from the 2007 peak and the industry is on track to contract for a sixth straight year in 2013.
That’s a gloomy picture. But analyst Jose Asumendi at J.P. Morgan Cazenove in London says the, well, carnage means the European auto business has plenty of open road to accelerate. The question is when.
French automakers are the most heavily exposed to Europe’s auto market, accounting for 58% of Renault’s
sales. Renault “seems reasonably diversified in other regions,” Asumendi notes in a recent research report, adding that its “European exposure might present a good opportunity to capture any recovery in the European car market.” J.P. Morgan has raised Renault shares to “overweight,” with a price target of 74 euros.
European car makers have had a rough road, with new car sales at 17-year low in June, but the worst of the financial crisis should be showing up in the rear-view mirror.
Peter Garnry, equity strategist at Saxo Bank, recommends Fiat shares, as the valuation on the Italian car maker is “extremely low compared to how profitable it is.”
“The next year looks quite favorable for Fiat,” Garnry adds. “You’ll likely see a growing car market again when we get a rebound in Europe. Economic growth is almost positive in Europe and that could also have a positive spillover effect on Italy.”
The recent improvement in the U.S. car market should also serve as a guideline for Europe’s auto industry.
Says Garnry: “In the U.S. we saw a huge plunge in sales, but they are now slowly reverting back to normal growth. We still see a 20% upside in the U.S., and there’s much more upside in Europe.”
Spain has been one of Europe’s hardest-hit markets during the financial crisis, but the country still offers attractive investment opportunities, says Predrag Dukic, senior equity sales trader at CM Capital Markets in Madrid.
Spain’s largest oil driller, Repsol
, is one of Dukic’s top picks to participate in Spain’s and the euro-zone’s recovery.
“There are a couple of things in the pipeline that makes Repsol interesting,” Dukic says. “The first thing is its oil discoveries, which have significantly increased over the last few years. Secondly, there has been some speculation that the compensation they are seeking from Argentina’s YPF
will be settled soon and that could give it a nice cash boost.”
Vestas Wind Systems
Shares of Vestas Wind Systems
had faced strong headwinds, but the stock bottomed in November 2012. Since then the Danish wind technology company has enjoyed the wind at its back, says Paul Desmond, president of Lowry Research.
“The whole wind industry is a favorite of everyone around the world,” Desmond says. And while some alternative energy sectors have been hit by austerity and cost cuts, Desmond says Vestas is seeing strong buying momentum from investors, which is what the technical analyst looks for in a stock.
Lowry Research measures investor buying interest to determine a stock’s attractiveness. “I want to see strong enthusiasm for a company then follow the lead of other investors who know more than I do,” Desmond says. “What you really want to see is a stock that is down from its highs significantly and has strong accumulation going on as it comes off its low.” Vestas, he notes, “fits that to a ‘T’.”
Euler Hermes is a major provider of trade-related insurance, a specialized market with global reach.
Paul Desmond, president of Lowry Research, likes the fact that investors have been accumulating shares of Euler-Hermes for awhile now. “Insurance stocks as a whole are strong,” he says.
But if buying stock in a French company seems too dicey given the country’s economic circumstances, Lowry suggests viewing Euler Hermes in a different light — “not from standpoint of opinion of France,” he says, “but of the number of dollars coming into their markets versus the number of dollars coming out. Despite all of these stories that (France) looks weak, we’re seeing some signs of strength.”
is restructuring its business lineup to concentrate on core media properties, a strategic shift that includes unloading most of its stake in videogame-maker Activision
and its entire position in Maroc Telecom.
The French conglomerate has been stepping up sales of these and other non-core assets since activist shareholder Groupe Bollore
invested in the company, notes Kevin Lilley, manager of Old Mutual European Equity Fund, who recommends Vivendi stock.
Narrowing its business could be a positive catalyst for Vivendi’s shareholders, adds Morningstar senior stock analyst Allan Nichols. If Vivendi continues to streamline operations and ceases to be a holding company, Nichols observes in a recent research report, that “should help remove the conglomerate discount and push the stock toward our fair value estimate” of 22 euros.
Now that Priceline.com has topped profit forecasts yet again, it might be time to book its shares.
A stake in the Connecticut-based online travel broker provides focused exposure to Europe, which generates about 60% of Priceline’s revenue, according to FactSet data.
The company famously pitched by actor William Shatner has topped Wall Street’s earnings forecasts for at least 20 quarters in a row, FactSet data show. Risks include stiff competition among online travel brokers, as well as economic and security issues that can hit the travel industry hard.
Molson Coors Brewing Co.
While Coors advertisements invite you to “Taste the Rockies,” you also can sip the Alps with a stake in Molson Coors Brewing Co.
The Denver-based company draws about one-third of its revenue from Europe, according to a July research note from J.P. Morgan analysts. In that note, the analysts said “more than a few clients have expressed interest in finding companies with exposure to Europe and less exposure to EM [emerging markets].”
Molson Coors is exactly such a company, so it was among the names suggested to clients by J.P. Morgan. But one challenge for all brewers is consumers increasingly opting for wine and spirits rather than beer.