5 Stocks To Appreciate After Europe's Recovery
Dr. Osman is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Driven mainly by the financial collapse in Greece, the Eurozone is caught in a downward spiral. For the last quarter of 2012, economic activity in the region is expected to shrink. Analysts' estimations suggest an overall contraction of around 0.5%.
France is on the spotlight as it appears to be highly affected by the current economic turmoil. At the moment, France is witnessing stagnation and unemployment of around 10%. Also, the country's diminished competitiveness has provoked skepticism over President Francois Hollande's ability to boost the economy. President Hollande is facing serious challenges, with voters losing faith in him. For a typical investor, all these could imply a tragedy that should be avoided. However, patient value investors might see the stagnant French economy as a potential source of value opportunities. As Warren Buffet once said:
Be fearful when others are greedy, and greedy when others are fearful.
Here, I review five French stocks that I believe should be considered for appreciate trends.
For the third quarter of 2012, Sanofi reported mixed financial results. Net sales marked a 3.3% increase on a reported basis. The increase in net sales was primary driven by the strong performance in growth platforms. On the other hand, the loss of exclusivity of Plavix and Avarpo in the U.S. negatively impacted other revenues. Nevertheless, Sanofi holds a robust pipeline and a wide portfolio of branded drugs, which generate significant cash flows.
For the first 9 months of 2012, operating income grew by 24% compared to the same period in 2011. Throughout 2012, the stock performed nicely by returning over 18%. At the moment, Sanofi is trading close to its 52-week range of $45.72 with a P/E ratio of 15.14. While the current P/E ratio indicates a rather expensive stock price, the forward P/E ratio of 9.05 is considerably attractive. In addition, Sanofi has at least 17% upside potential based on analysts' mean target price.
Total, S.A. (NYSE: TOT) is among the most valuable companies within the basic materials sector. It operates as an integrated oil and gas company in over 130 countries. Total offers a diversified portfolio of products to a variety of customers.
The difficulties associated with the expansion of petroleum reserves have gradually turned Total toward the exploitation of alternative energy resources. In the first half of 2012, financial results reveal a solid cash position. Cash from operating activities grew by 6% compared to last year. Also, for the same period, the company reported a 3% drop in the net-debt-to-equity ratio. At the moment, Total's valuation metrics are indeed compelling. The stock is trading with a 50% discount to sales and 1.16 times book value. Morningstar gives it 4 stars. I am also bullish about this stock and I strongly suggest it is worth watching for upside trends.
Founded in 1853, Veolia Environnement, S.A. (NYSE: VE) carries a long tradition. It is a leading environmental solutions provider. Veolia serves customers in more than 70 countries through three complementary business activities: waste management, water management, and energy services.
Over the past five years, Veolia's sales were overall flat, showing a growth of just over 1%. Also, EPS for this year followed a downward pace. However, for 2013, EPS projections suggest an increase of over 50%, indicating a more rewarding outlook for shareholders. Analysts are overall positive about this stock. Out of 17 analysts tracked by Marketwatch, 9 recommend a "buy" rating while one suggests an "outperform" rating. At the current price level, I believe Veolia is undervalued. The stock is trading with 86% discount to sales and about half times book value. Also, Veolia is trading for 11.08 cash per share. If we compare this to its latest close price, the cash per share exceeds the stock price by 13%.
Alcatel-Lucent (NYSE: ALU) is a Franco-American global telecommunications equipment manufacturer. It owns 25 subsidiaries and has operations in more than 130 countries. Alcatel-Lucent holds a diverse product portfolio of about 29,000 active patents.
Currently, the company is in a rough spot. Continuing losses have caused investors sentiment to deteriorate. The company is applying a restructuring process, trying to achieve a turnaround. Alcatel-Lucent is a risky investment but it might worth the risk, after all. For Q3 2012, the company witnessed declining sales in Europe and North America. On the other hand, it experienced double digit growth rates in Central and Latin America. The stock's year-to-date chart is the definition of a falling knife. Alcatel is trading at extremely low levels, risking a possible reverse-split.
Nevertheless, there are some indications that it could surprise to the unexpected. Alcatel has sealed strategic deals with major industry players, such as China Telecom, China Mobile, and Telefonica. These deals could enhance the company's backlog and provide higher than expected returns. I strongly suggest it is worth keeping Alcatel-Lucent in a "watch list." Q4 2012 financial results will be a catalyst to the company's future performance.
France Telecom (NYSE: ORAN) stands at the forefront of the telecommunications business in France. The company serves as a European mobile operator and ADSL Internet access provider. It also serves as a telecommunications services provider under the Orange Business Services Brand.
The company suffered from subscriber losses due to the increased competition within the wireless services market in France. The entrance of Iliad as a direct peer in the French market caused some trouble. In order to hold to its leading position, France Telecom implemented a competitive pricing strategy. I believe that France Telecom could offer a significant value opportunity. Its fundamental and valuation metrics are compelling when compared to the industry as a whole. According to analysts' mean target price, the stock has at least 60% upside potential.
ecofinstat has no positions in the stocks mentioned above. The Motley Fool owns shares of France Telecom (ADR). Motley Fool newsletter services recommend France Telecom (ADR), Total SA. (ADR), and Veolia Environnement (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.