Three Safe and Undervalued Dividend Stocks from Europe

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As Warren Buffett said: “Be fearful when others are greedy, be greedy when others are fearful.” The European sovereign debt crisis could create great investment opportunities for patient investors. On the article “Europe On Sale”, released by Barron’s, Jonathan Buck pointed out 10 European stocks which could potentially increase as much as 20% next year. However, I think there are five stocks in that list that can be considered safe bets and one stock to watch out for at the current moment. In this article, I will cover the first three safe bets for investors.

When people talk about Germany, they automatically think of engineering best practices, including automobile manufacturing. Volkswagen (NASDAQOTH: VLKAY) is one of the most outstanding German automobile makers globally, with worldly recognized brands such as Volkswagen, Audi, and Bentley. The majority of the company’s revenues were from Volkswagen’s Passenger Cars, with nearly €94.7 billion ($124.7 billion) in revenue in 2011, accounting for 59.4% of total revenue. Audi ranked the second with more than €44 billion ($58 billion) in revenue, representing 27.6% of total sales. The sales have been generated in many different places globally, with the majority in Asia Pacific and European regions. As of second quarter, Volkswagen had a 12.2% global market share in the passenger car market. Interestingly, a growing giant Germany automobile maker, with decent global market share, is trading for only 6.61x forward P/E and paying the dividend yield of 1.86%.

Roche Holding (NASDAQOTH: RHHBY) is the Swiss-based pharmaceuticals and diagnostics company with its best-selling products Oncology accounting for around 55% of total pharmaceuticals’ revenue. The recent acquisition of Genetech has made Roche become the leader in a cancer drug market, along with the rising demand in the world’s aging populations. Roche has two main advantages: the first one is that the company has low threat from patent expirations. Many of its products still have several years for their patents to expire in the US, including Avastin (2019), Rituxan (2016), Herceptin (2019), Lucentis (2019), etc. In addition, it is quite complex to get approval for bio-similars because clinical trials would be required and it would cost a lot of make bio-similars, so the generic ones couldn’t be priced low. The second advantage is about its strong pipeline, with strong R&D investments. Roche announced that it had nearly 72 new molecular entities in the pipeline, with 19 late-stage clinical trials and those would be expected to read out over 1.5 years. Currently, Roche is valued at 12.74x forward P/E and paying the dividend yield of 2.4%.

WPP (NASDAQ: WPPGY) is considered to be the giant player in integrated marketing services including Advertising, Media, Consumer Insight and Public Relations, etc. WPP owns several famous advertising agencies such as Ogilvy & Mather Advertising, JWT, Grey, and Y&R Advertising with operations in more than 100 countries. Long-term investors of WPP have experienced a steady increase in its revenue, dividends, and positive free cash flow in the last 10 years. In 2011, it paid out GBP 0.94 ($1.52) per share, on the EPS of GBP 3.23 ($5.22), thus the payout ratio was conservative at 29.2%. Trailing twelve months, EPS was GBP 3.3 ($5.33), whereas the operating cash flow and free cash flow were GBP 1 billion ($1.62 billion) and GBP 756 million ($1.22 billion). WPP could be a good income play for investors as it is paying 2.8% dividend yield. In addition, it is valued quite reasonably at 11.9x forward P/E.

Foolish Bottom Line

Those are three European stocks that I think could deliver a decent long-term performance for the patient shareholders. In addition, those stocks seem to be undervalued, and those businesses have established strong global footprint in the field they are operating. In the next article, I will talk about other two other potential European stocks and one stock to avoid in the Barron’s list.  

 

 

 

 

 

 

 

  


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!

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