Why Investors Should Consider French Stocks
Bob is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Investors may write off France as a country of punishing taxes and economic calamity, but the truth is, there are some extremely profitable companies that call France home. It’s not hard to understand why. Despite the ongoing headwinds presented by the widespread European fiscal crisis, France remains the fifth-largest economy in the world by gross domestic product, according to the United Nations.
And, recent evidence suggests that the French economy is outperforming its Eurozone peers. In June, the BBC reported that economic activity in France is picking up, while the rest of the Eurozone struggles from the lingering effects of fiscal austerity. To emphasize, consider that industrial production in France surged 2.2% in April, far surpassing market economist expectations for just a 0.3% increase. As a result, Foolish investors would be wise not to ignore these corporate titans that are headquartered in France.
Profits keep gushing for this oil major
Integrated energy giant Total (NYSE: TOT) is a favorite among income investors for its hefty dividend yield, that is appreciably higher than its U.S.-based peers offer.
While most of the publicly traded energy stocks located in the U.S. offer dividend yields between 3% and 4% annualized, Total’s dividend yield is much stronger. According to Yahoo Finance, Total’s last four quarterly dividends add up to a 6% yield at recent prices.
Total certainly has the financial strength to support such a generous payout. In its most recent fiscal year, Total reported an 8% increase in both sales and adjusted net income per share (in euros). The company is a great cash generator, reporting a 15% year over year increase in cash from operations during 2012. In addition, the company is conservatively capitalized, carrying a net-debt-to-equity ratio of only 20%.
An under-the-radar health care giant
Last year proved to be a difficult one for most pharmaceutical companies, due to lingering patent expirations and emerging generic competition. Add in the ever-present economic headwinds facing the European economy, and it’s surprising that a French health care company could remain afloat.
Thankfully for its investors, Sanofi (NYSE: SNY) performed admirably last year. Total sales actually grew half of one percent, even though the company lost more than 1.3 billion euros due to generic competition.
Going forward, management expects the company’s difficulties to continue this year. Sanofi projects 2013 earnings per share to be flat to down 5% for the full year, due primarily to residual impacts from the company’s loss of Plavix and Avapro exclusivity in the United States.
That being said, the company’s troubles certainly aren’t being reflected in the stock price. Sanofi has skyrocketed more than 40% over the past 52 weeks and currently sits near all-time highs, and that doesn’t even include the hefty 3.3% dividend investors receive.
A consumer staples juggernaut for the road
One company that almost needs no introduction is Danone (NASDAQOTH: DANOY.PK), the $44 billion consumer goods giant that holds a stable of well-known brands including its namesake yogurt, in addition to Evian bottled water.
The company operates through four divisions: Fresh Dairy Products, Waters, Baby Nutrition, and Medical Nutrition. The Fresh Dairy Products segment makes up 58% of the company’s sales. This is where Danone’s yogurts are concentrated.
Danone reported a solid 2012 of its own, as sales increased 8% to nearly 21 billion euros. The company is a solid free cash flow generator and returns that cash to shareholders. Danone reported that its full-year free cash flow increased more than 11% to nearly 2.1 billion euros.
This success propelled the company’s Board of Directors to propose an increase to the company’s dividend. The new dividend amounts to a yield slightly less than 3%.
Moreover, Danone’s first-quarter results were strong. The company realized 5.6% organic growth and confirmed its full-year 2013 targets. Management expects 5% full-year sales growth as well as 2 billion euros in free cash flow generation.
The Foolish takeaway
If you can look past the scary headlines coming out of Europe, you’ll find there are some highly profitable French stocks that reward their shareholders handsomely with strong profits and dividends.
The fact that these companies have held up so well, even in the midst of such economic distress, stands as a testament to the quality of their underlying businesses. These French stocks have had a lid on their valuations because of global economic concerns. Fortunately, those concerns are starting to abate, and investors can still secure reasonable prices for what is looking like a resurgent French economy.
Should the European fiscal crisis recede, these French stocks stand a good chance of strong outperformance. In the meantime, investors are being paid handsomely to wait for the French economy to recover, but once it does, even better times await. Consider adding these French stocks to your portfolio.
Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends Total SA. (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. Is this post wrong? Click here. Think you can do better? Join us and write your own!