Investing Abroad: French Stocks
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Diversification is the best defense against global uncertainty. Living abroad, that is one truth that I have come to appreciate more and more. With so much uncertainty in Europe and the rest of the world, we sometimes forget that truth. In these times of uncertainty, many investors seek the safety of good US companies, avoiding the rest of the world completely. Diversification means more than just different sectors of the US economy. Diversification also means foreign companies that will protect your portfolio from domestic risk.
The simplest way for individual investors to achieve adequate international diversification is through an ETF. The PowerShares FTSE RAFI Developed Markets ex-U.S. Portfolio or the PowerShares FTSE RAFI Emerging Markets Portfolio will give investors sufficient global diversification, with a decent dividend to boot. For investors looking for a more hands-on approach, below are five French companies that might be suitable for a more globally diversified portfolio.
1. Alcatel Lucent (NYSE: ALU) is by far the riskiest stock of this bunch. Shares of the telecommunications equipment company have lost 93% of their value over the past 5-years and currently trade at $1.11. Just yesterday the company preannounced another awful quarter, sending shares falling 19%. Alcatel Lucent is swimming in debt and bankruptcy is a real possibility. For Foolish investors (capital-F) or maybe just foolish investors (lowercase-f), Alcatel Lucent is the epitome of a lottery stock. There are basically only two possible outcomes for investors. Either investors will lose everything in bankruptcy or management will actually turn the company around, resulting in a jackpot for investors. All-or-nothing investing. Much too risky for me, but for others…
2. Veolia Environnment (NYSE: VE) has three business segments; water management, waste management and energy management. Veolia is in very recession-resistant businesses. In any economic environment, people will always need clean drinking water and waste disposal. Why is the stock down so much then, from over $90 in 2007 to just $11.14 currently? Other water utilities and waste management companies have fared far better during the same time period. Veolia’s previous CEO overextended the company at precisely the wrong time. The company was leveraged-up to expand fast globally right before the recession and shareholders have been punished for it. The new CEO has done a great job of turning the company around; selling non-core assets, significantly reducing the debt and cutting the dividend in half (cutting the dividend may not seem like a good thing, but it needed to be done). The company currently trades for only 8.85 times forward earnings, with a PEG ratio of 0.90.
3. France Telecom (NYSE: FTE), like much of this list, has been hit hard by European uncertainty, losing about 65% of its share value since its 2007 high. Communication services are a recession-resistant industry, but recession-resistant does not mean recession-proof. Although customers will always have a need for communication services, customers are unlikely to buy a new expensive phone regularly with so much persistent uncertainty. France Telecom is not only a European telco, however. France Telecom also has operations in the Middle East and many French-speaking Sub-Saharan African countries. That emerging market exposure away from Europe can be good or bad, depending on your opinion on those two specific regions.
4. Sanofi (NYSE: SNY) is the 4th largest drug company in the world and yet another stock in a recession-resistant business. Unlike the other recession-resistant businesses on my list, Sanofi’s stock price accurately reflects that recession-resistance. Aside from food and water, health care is one of the last things people give up. Including dividend payments, the stock is nearly back to its pre-recession levels (highlighting the power of high-yield dividend investing in strong, proven companies). Unlike many of the other major drug companies, the drug patent cliff for Sanofi is mostly being the company, already baked into the share price. While other companies will have to deal with their own looming patent cliff soon, for Sanofi investors this is old news.
5. Total (NYSE: TOT) is one of the five Supermajor oil and natural gas companies (number five of the Supermajors based on market capitalization). The company has operations in over 130 countries. Like all of the Supermajors, Total’s exposure is to the worldwide oil demand, rather than Europe-specifically (although obviously what happens in Europe affects worldwide oil demand). Total mostly trades in lockstep with its Supermajor peers. Although out of the five, Total’s share price has fallen the most since the great recession.
Are these five French companies suitable for your own diversified portfolio? That I cannot say. Use this list a good stepping-off point for your own research into good companies in France and elsewhere in the world. Please contact a tax professional about the suitability of international companies in your portfolio.
WhichStocksWork owns shares of Veolia Environnement (ADR). 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.