If only the eurozone's political leaders were as effective as its corporate bosses. As the flames of higher bond yields lick the walls of Rome, so the prospect of a really nasty sovereign debt crisis looms larger. But for all the fiscal turmoil, Europe remains full of high-quality, financially sound companies whose share prices have been laid low by the inability of politicians to get to grips with the possibility that a tiny country might default on its debt.
So we've gone in search of quality Eurozone stocks this week were the current crisis could create significant buying opportunities. Given the ongoing nature of the fiscal problems and the volatility of markets, we regard the results of this screen as more of a watch list than a roster of stocks to pile in to right now.
For that reason, we've largely excluded price-related metrics from the search criteria. We're looking for signs that the underlying business is a good one, which is why the core of the screen is return on equity (RoE). You can pick your own entry point, or average your way into a position using a regular investment strategy - something that many execution-only brokers now offer at low cost.
We did pay attention to market value, though, on the basis that size generally implies better corporate staying power when times get tough. We screened the 252 companies in the S&P Eurozone LargeMidCap index using the following criteria:
■ Average RoE over the last five financial years of 15 per cent or more.
■ RoE above 10 per cent in each of the last five financial years.
■ Rising turnover in at least four of the last five years
■ Net debt of no more than three times cash profits
■ A five-year beta of less than 0.8. Beta measures how sensitive a share price has historically been to wider market movements. Given the volatility of markets generally, you don't want shares that are going to be gyrating wildly on every market move.
The stocks that made it through our screen are shown in the table, ordered by market value, and we've looked at three of the companies in more detail below that. Note that none of these is listed in the southern Eurozone countries; if Greece or Italy does exit the eurozone, any 'new drachma' or 'new lira' would depreciate heavily, potentially wiping out any gains.
Table: Europe's bargains
| TIDM | Company | Market Cap | Price | PE | Div Yld | 1-mth chg (£) | 3-mth chg (£) |
|---|---|---|---|---|---|---|---|
| BIT:ENI | Eni | €56.3bn | €15.55 | 7 | 6.7% | 16% | 4% |
| BIT:LUX | Luxottica Group | €9.5bn | €20.70 | 18 | 2.1% | 8% | -5% |
| BIT:MS | Mediaset | €2.9bn | €2.54 | 11 | 14.1% | 5% | -14% |
| CATS:ELE | Endesa | €17.5bn | €16.50 | 8 | 6.2% | -5% | -18% |
| CATS:ITX | Industria de Diseno Textil | €39.0bn | €62.60 | 19 | 2.6% | -1% | 2% |
| CATS:TEF | Telefonica | €67.3bn | €14.94 | 7 | 10.3% | 3% | -3% |
| DB:BEI | Beiersdorf | €9.1bn | €40.21 | 21 | 1.7% | 1% | -8% |
| DB:RWE | RWE | €15.3bn | €28.93 | 6 | 12.1% | 4% | -19% |
| ENXTAM:UNA | Unilever | €69.8bn | €24.69 | 15 | 3.7% | 4% | 10% |
| ENXTBR:ABI | Anheuser-Busch InBev | €63.0bn | €39.48 | 14 | 2.0% | 1% | 0% |
| ENXTBR:BELG | Belgacom | €7.0bn | €21.79 | 10 | 10.0% | -6% | -10% |
| ENXTBR:COLR | Etn Fr Colruyt | €4.7bn | €29.64 | 14 | 2.3% | -6% | -12% |
| ENXTBR:MOBB | Mobistar | €2.4bn | €40.03 | 11 | 10.7% | -7% | -17% |
| ENXTLS:CPR | Cimentos De Portugal, SGPS | €3.5bn | €5.23 | 13 | 3.9% | 4% | -3% |
| ENXTLS:JMT | Jeronimo Martins SGPS | €7.6bn | €12.11 | 18 | 1.7% | 3% | -12% |
| ENXTPA:AI | L'Air Liquide | €25.9bn | €91.51 | 16 | 2.6% | 4% | -4% |
| ENXTPA:DSY | Dassault Systemes | €7.2bn | €59.64 | 19 | 0.9% | 13% | -2% |
| ENXTPA:EI | Essilor International | €10.6bn | €51.20 | 20 | 1.6% | -5% | -8% |
| ENXTPA:FP | Total | €83.6bn | €37.08 | 7 | 6.2% | 10% | -1% |
| ENXTPA:LR | Legrand | €6.6bn | €25.13 | 12 | 3.5% | 5% | -8% |
| ENXTPA:OR | L'Oreal | €45.9bn | €77.42 | 18 | 2.3% | 6% | -6% |
| ENXTPA:RMS | Hermes International | €26.0bn | €248.00 | 46 | 0.6% | 4% | -4% |
| ENXTPA:SW | Sodexo | €7.9bn | €51.70 | 16 | 2.6% | 4% | -2% |
| HLSE:FUM1V | Fortum | €15.5bn | €17.44 | 11 | 5.7% | -2% | -5% |
| HLSE:ORNAV | Orion Corporation | €2.1bn | €14.75 | 11 | 8.5% | -3% | -12% |
| ISE:DCC | DCC | €1.6bn | €19.65 | 10 | 3.8% | 5% | 8% |
| ISE:KRZ | Kerry Group | €4.6bn | €26.35 | 12 | 1.1% | 0% | -8% |
| XTRA:SAP | SAP AG | €52.1bn | €43.76 | 15 | 1.4% | 14% | 1% |
*based on consensus forecasts for the next twelve months
source: CapitalIQ
