(By Mark McSherry)
“Some pundits confuse Europe’s debt crises and its dire need for institutional, structural and bank reform with the fortunes of actual companies with customers and clients all around the world that just happen to be headquartered on the continent.“
For investors prepared to think beyond the often-scary economic headlines that come out of Europe on a regular basis, there is a lot of money to be made in the continent’s company stocks.
Many people might be surprised to learn that amid the meltdown in Europe last year, stock markets overall on the continent actually made positive returns of about 20 per cent, according to research firm Morningstar .
That’s because Europe has many world-class companies, with world-class managers, who get on with the business of making money for shareholders unhindered by the incompetence of Europe’s politicians and the inertia of its institutions.
It’s also because many of these companies make a lot of their revenue outside of Europe, even if they are headquartered on the continent.
“The country of domicile is not the same as economic exposure,” said Stan Pearson, head of European equities at Edinburgh-based Standard Life Investments, which manages assets of roughly $280 billion.
“There are lots of world-class companies in Europe … would you rather give your money to Detroit or to Nestle’?” added Pearson in an interview.
Lazy investors might miss out on opportunities if they don’t look beyond the “Europe is a mess” headlines.
Listening to the financial news in the United States every day, investors could be forgiven for thinking that all of Europe — both the public and private sectors — is a basket case.
Many pundits don’t differentiate between the two. Smart investors should.
Some pundits confuse Europe’s debt crises and its dire need for institutional, structural and bank reform with the fortunes of actual companies with customers and clients all around the world that just happen to be headquartered on the continent.
Europe’s smartest companies will always make money for their equity holders.
And for the more sophisticated investors who pick the right companies, the rewards can be huge.
“Over 50 percent of European companies have dividend yields above European corporate credit,” said Pearson.
European stocks have made nice gains so far in 2013, but they have risen only half as much as global benchmarks, making them cheaper than equities in the United States and Asia, according to Bloomberg data.
What’s more, while the S&P 500 has now made back the losses it made during the global financial crisis, the Euro Stoxx 50 is still trading almost 40 percent below its 2007 levels.
So, if investors are careful, selective, and do their European company research, there is a lot of money to be made.
Pearson cited luxury goods company LVMH, healthcare firms Novo Nordisk and Grifols, semiconductor technology company ASML, travel technology company Amadeus, investment firm Kinnevik, and detergent and adhesive maker Henkel as just a few of the types of European companies that are worth studying.
“The stock market is not pricing appropriately … and that creates opportunities …” said Pearson. “All the volatility … actually creates a positive environment to pick some stocks.”
Pearson acknowledged the massive economic, structural and institutional problems faced by Europe and the urgent need to fix many of the continent’s big banks.
“It’s going to take time to work through this process,” he said, but he concluded: “It’s a great buying opportunity … as long as you are disciplined.”
“Opinion pieces of this sort published on RISE Networks are those of the original authors and do not in anyway represent the thoughts, beliefs and ideas of RISE Networks.”