European Stocks Hitting New Lows

[Ballinvarosig Investors]

Have any folks here dipped their toes into European stocks that are getting pummeled?

 

Telecoms stocks such as France Telecom (FTE), Deutsche Telekom (DT), Telefonica (TEF) are huge cash generators with 10% dividends, strong balance sheets operating in oligopolistic markets.

 

If telecoms aren't for you, then you've got several large cap insurer with strong balance sheets, generating huge cash flows and selling below book value, Aviva (AV), Allianz (AZSEY).

 

Veolia (VE), Groupe Danone (DANOY) and Total (TOT) are other large cap companies trading at low P/E's and paying high dividends.

 

I'm not specifically touting these stocks, just illustrating that relative to US stocks, Europe looks cheaper. Is anyone actively investing in this domain?

[Ballinvarosig Investors]

Trades at a 25% discount to its publicly traded major holdings

Taxation at the holding corporation level in Europe is higher than that of a similar US holding corp, so that explains part of the discount.

[SharperDingaan]

You might want to think these through.... 

As a NA investor we recently looked at NBG versus a dominant European property firm; an 8 yr euro holding, over different ends of a higher risk spectrum.

 

We found that it was effectively a bet on macro events. For NBG: (1) Continuing & worsening Euro disruption, (2) Euroland restructuring & sovereign ejections (Greece), (3) Successful capital controls & loan principal redenomination, (4) Bank of Greece support, (5) Subsequent Greek high street inflation, (6) Current & future FX rate. We concluded that 8 yrs wasn’t long enough, & that even if NBG were 60% cheaper – you still couldn’t compound at enough to make it worthwhile. You were better off temporarily investing your $ in a petro currency (Canada) & buying NBG ‘X’ yrs from now; the same $ investment buying 1.5-2.5x more stock.

 

Surprisingly, except for (4) & (5) the same things applied to the property firm; the only new factor was the current commercial debt refinancing crunch. It was also better to make the investment through someone else (ie: FFH), versus directly.

 

The wildcard was how the domestic populations of crowded Euroland might react when unemployment rockets, social safety nets are cut back, generational aspirations are crushed, & the more radical elements manipulate social tensions for political gain. The current Greek & French riots could seem pretty tame, & Europe doesn’t have a great history (Bosnia, run up to WWII, etc). How much is the exposure worth to you – when it’s essentially all left tail risk?

 

SD