I recently took a look at European stocks I'd like to buy after the next euro debt selloff. To my surprise, 40% of the names I came up with were French companies.
France? Who ever thinks of investing in France? Its economy is increasingly uncompetitive. It's saddled with a strong euro when what the country's exporters need is a weak currency. And its budget deficit is creeping higher. In fact, France looks in line to be the next Italy.
That's precisely why I'm interested. Not right now, mind you. But sometime this year when all the potential bad news has hit the fan.
What I'm watching for is a return of the euro debt crisis or some France-specific piece of bad news that drives down shares prices and gives me a chance to pick up one or two or these stocks.
France has beaucoup undervalued, globally competitive companies. And I'd like to get a stock or two from this group at a bargain price.
Part of the market problem with French equities in general is that so many of them trade only in Paris or have relatively small trading volume in New York. That means they're under-followed by Wall Street and by U.S. investors. That's also part of the opportunity as online brokers such as Schwab and Fidelity make overseas trading easier and as volumes for some of these stocks gradually pick up in New York.
I'd start my French watch list with Danone (which trades over the counter as DANOY in New York, with about 770,000 shares in daily volume, or as BN.FP in Paris), because of the potential of this French dairy producer in emerging markets (and because I think it will sooner or later become an acquisition target). The company owns Evian (bottled water) and Actinia yogurt, two globally recognized brands, and it has a fast-growing infant nutrition business. Activist investor Nelson Peltz owns 1% of the company's shares.
Dassault Systems (DSY.FP in Paris or a very thinly traded DASTY in New York) is on the list because this software maker is one of the leaders in software for printers used in 3D manufacturing. And unlike the hardware makers such as 3D Systems (DDD), Dassault has a relatively low-risk path to growth in the 3D market.
L'Oreal (OR.FP in Paris or a thinly traded -- daily volume of 11,852 shares -- as LRLCY in New York) is on my watch list because the cosmetics maker is expanding in emerging markets and because when Nestlé's (NSRGY) stand-still agreement expires in 2014, L'Oreal will either be the target of a takeover or wind up wooing investors as it tries to buy back Nestlé's shares. (Nestle owns 29.6% of the company.) Revenue growth for the consumer products division in emerging markets was an already healthy 7% in 2012, but Credit Suisse forecasts that this will increase to 10% in 2013.
LVMH Moet Hennessy Louis Vuitton (MC.FP in Paris or a thinly traded -- 21,000 average daily volume -- LVMUY in New York) is another one I'm watching, because this is one of the premier luxury goods companies in the world. Sales have started to pick up again in China, and in the fourth quarter, organic revenue grew by 8% in Asia and 9% globally. At the moment, the Swiss luxury watch company Richemont (CFR.VX in Switzerland or a very thinly traded CFRUY in New York) is cheaper, but, oh, the brands at Louis Vuitton! Unfortunately, I don't think they hold sample sales for stocks.