The increased volatility around political events in Europe, especially the threat of the U.K. voting to leave the European Union in a so-called "Brexit," could open up a world of opportunity for the brave investor.
Although in the U.K. there are fears that a vote to leave could burst the housing prices bubble, hurting the whole economy, European companies in general are not doing too badly, and this shows in their first-quarter earnings.
So far, 66% of the European companies that have reported first-quarter results have posted earnings per share either in line or above consensus expectations, which is above the historical average of 63%, according to analysis by Societe Generale's equity strategists.
Earnings in Europe for the full year are expected to remain flat. Within those expectations, U.K. companies' earnings are seen declining by 5.5% while eurozone companies' profits are forecast to grow by 1.4% this year.
The difference between the U.K. and the euro area is likely to be reduced later in the year, however, as eurozone companies have benefited from the relatively weaker euro, low oil prices and the European Central Bank's favorable policies, which should all begin to fade.
The FTSE 100 has suffered from weak earnings in the commodities and financial sectors, but "the recent rebound in commodity prices and receding deflation fears should stop this FTSE fall, and we continue to advocate for a rerating of both euro area and U.K. large-cap equities in the second quarter," Roland Kaloyan, European equity strategist at Societe Generale, said.
The bank's strategists have a "Best Value" investing basket for European companies, containing their best ideas in terms of value investing. To select stocks, they look at European companies covered by Societe Generale analysts, with market capitalizations above 3.0 billion euros ($3.4 billion); that's an universe of about 311 stocks. They try to find companies with attractive valuations, high profitability and sound balance sheets to include in the basket.
It currently contains 27 stocks rated as "buy" and three rated "hold." Among their biggest "buy" recommendations: French oil company Total (TOT), Dutch electronics firm Philips (PHG) and big German and French carmakers: BMW (BAMXY), Daimler (DDAIF) and Renault (RNLSY).
The Street's Quant Ratings also rates Total a "buy," highlighting the company's "attractive valuation levels, notable return on equity and largely solid financial position, with reasonable debt levels by most measures."
By contrast, it rates Philips only a "hold," saying: "The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses -- including a generally disappointing performance in the stock itself and unimpressive growth in net income."
Despite fears about European banks, Societe Generale's value basket contains five financial names: Britain's HSBC (HSBC) and Lloyds Banking Group (LYG), Germany's Commerzbank (CRZBY), ABN Amro from the Netherlands and Norway's largest financial services group, DNB. Plenty of choice for the brave investor.
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