Europe: Down but Not Out

 | Nov 16, 2012 | 7:30 AM EST  | Comments
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sny

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si

We all know of Europe's economic troubles, with the eurozone falling back into recession.

While Germany will grow a small amount in 2012 and 2013 (0.8% a year), Spain's GDP will fall by 1.4% in each of those years and Greece's GDP by even more, The Economist reported. The southern rim of the eurozone, including Italy, is struggling big time.

Not surprisingly, European stocks have taken something of a hit. But when the stock market moves against a segment of the market, savvy investors start looking for opportunities. I am not trying to minimize Europe's challenges, but some companies seem to have been pummeled more than is justified and at their current prices are worth your consideration.

One example is Autoliv (ALV). To choose stocks, I use automated strategies I created modeled on the thinking of great Wall Street investors and my Ken Fisher-based strategy highly recommends Autoliv at this time. Headquartered in Sweden, Autoliv manufactures and markets airbags, seatbelts, passive safety electronics and active safety systems. It is the leading supplier of safety parts for the auto industry.

The Fisher strategy looks at the price-to-sales ratio, which is a measure of how well priced a stock is, and wants this ratio to be below 0.75. Autoliv easily gets over this hurdle with a P/S of 0.64. Also in the company's favor is an inflation-adjusted long-term EPS growth rate of 19.24% (15% is the minimum allowed), plenty of free cash flow per share and acceptable net profit margins of 5.34 (based on the average over a three-year period).

German-based Siemens (SI), a huge conglomerate, operates in a number of industries, such as energy, healthcare, infrastructure and what it calls "industry," which includes automation and motors and drivetrain systems. I use a strategy that mirrors what Peter Lynch has described in his books, and this strategy gives Siemens a strong recommendation. It uses the P/E/G ratio (P/E relative to growth) as a measure of how well priced is a stock. A P/E/G of 1.0 or less is acceptable and Siemens easily bests this benchmark with a P/E/G of 0.60. The company is also doing a good job managing its inventories.

French Big Pharma Sanofi (SNY) is another European company worth looking at. Its products include prescription medicines, consumer healthcare products, generic drugs, vaccines and animal health products. A strategy I created from the writings of James O'Shaughnessy likes this company. In its favor: a huge market cap ($114 billion), strong cash flow per share, a large number of outstanding shares and impressive annual sales ($46 billion). Companies with all of these attributes are ranked based on their dividend and only the top 50 earn the highest recommendation. With a dividend of 3.93%, Sanofi is in this elite cohort of 50.

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