Two to Buy and One to Watch
Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
On the search for European safe and undervalued dividend stocks, I have outlined three opportunities, which could benefit investors in the long run, in the list compiled by Barron’s. In this article, I will point out two more stocks, which I think could be nice bets for investors, and one stock to watch out for in the list.
Aerospace and Luxury Brands
European Aeronautic Defence and Space (EADS) (NASDAQOTH:EADSY) is considered to be one of the largest global aircraft, helicopters, missiles and defense related equipment makers. EADS owned one of the biggest commercial and military aircraft under the Airbus brand. Airbus Commercial is the biggest revenue source for the company, with €31.16 billion, accounting for 61% of the total revenue in 2011. Since 1995, the number of orders has been growing, outpacing its head-to-head competitor Boeing (NYSE: BA).
Following the presentation of John Leahy, COO of Airbus, in 2011, Airbus had 64% of the global market share, whereas Boeing took the second place with a 36% market share. In the last 10 years, EADS has experienced a consistent increase in revenue, but fluctuating net profit and EPS. In 2011, it generated more than €1 billion ($1.32 billion) in profits, and more than €2 billion ($2.63 billion) in free cash flow. It is trading at 16.62x trailing P/E, but only 6.13x EV/EBITDA. It is paying a 1.5% dividend yield.
LVMH Moet Hennessy Louis Vuitton (NASDAQOTH: LVMUY) is known as the global leader in luxury with its diversified brand portfolios including Moet Hennessy, Louis Vuitton, Kenzo, Givenchy, Marc Jacobs, etc. In 2011, the majority of its revenues were derived from Fashion and Leather Goods, €8.7 billion ($11.47 billion), and Selective Retailing business segment, €6.44 billion ($8.49 billion). The diversified global brands are spreading into different corners of the world. In the last 10 years, LVMH has generated increasing net income and EPS, along with consistently positive free cash flow. Trailing twelve months, LVMH generated nearly €3.9 billion ($5.14 billion) in profits, or €1.37 EPS ($1.81), and €2.12 billion ($2.8 billion) in free cash flow. Currently, the company is trading at 20.75x trailing earnings, and it is paying 2.1% dividend yield.
One Commodity Stock to Watch Out
Rio Tinto (NYSE: RIO) made my list of a commodity stocks to avoid at the moment. Rio Tinto is one of the top global corporations in minerals exploration and production. The company has global exposure with its footprint in many minerals including copper, iron, aluminum, diamonds, etc. In 2011, the majority of its earnings was derived from iron ore, of $12.85 billion in 2011, out of total $15.55 billion in total revenue, accounting for a whopping 82.6% of the total revenue.
The risk of the business is the performance tied to commodity prices. I have previously written about the potential decline in iron ore prices. David Einhorn also chose iron ore as one of his short candidates. He mentioned that previous high iron ore prices attracted everybody into the industry, creating substantially increasing number of players and suppliers, which pushed up the supply significantly. Thus, the lower demand will be overwhelmed by the growing supply. Currently, Rio Tinto is valued at 25.8x trailing PE and paying 2.9% dividend yield.
Foolish Bottom Line
EADS and LVMH enjoy a global footprint with market leading positions in their respective fields. Airbus of EADS is the leader in commercial and airline global business, whereas LVMH owns the diversified top-notch luxurious brand portfolios. For Rio Tinto, even the company is considered to have lower operating risks compared to its peers. The macro factor is what investors need to watch out for when investing in this global miner.
hoangquocanh has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!