Are European Blue Chip Stocks on the Bargain Rack?

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The legendary French financier, Baron von Rothschild famously once remarked, "When the streets of Paris run with blood, I buy!"

But this time it is not just Paris. It's Athens, Dublin, Madrid and most of the other major Old cities of the Eurozone, where the markets have taken a beating.

The silver lining is that several European blue chip companies are now compelling buys.

Of course, it is virtually impossible to time the markets. Some would even say unwise.

That's why investors interested in Europe should look for high dividend yields to provide downside protection against further declines in the Eurozone.

Another aspect to consider when looking for upside potential is to find stocks trading at a favorable relative strength index rating.

Two European Blue Chips On the Bargain Rack

One stock that meets both standards is Total SA (NYSE: TOT).

The French oil giant has a 6.90% dividend yield. The average dividend yield for a company on the Standard & Poor's 500 Index (NYSE: SPY) is around 2%.

Even more tempting is that Total SA, at around $43.80, is trading very close to its 52-week trough of $39.95. At the nadir of The Great Recession, Total SA was in the low 40s.

For value investors, Total SA is trading at a price-to-sales ratio of just 0.48.

That means the stock price is less than the annual sales per share. Also indicative of the upside value is that the relative strength index rating for Total SA is 43.74. At 30, a stock is considered to be oversold and due to rebound. TOT is well within that range.

Another European blue chip to make the bargain rack is Siemens AG (NYSE: SI).

Like other high-quality names, the German engineering and electronics conglomerate is being dragged down due to the woes of Europe and slumping growth in Asia.

However, the economy of Germany is still very strong.

German exports are also shielded by the weak Euro. If the deutsche mark was still the medium of exchange, German-made products would be much more expensive internationally.

At present, what is much cheaper is the share price of Siemens. Near $82.00, Siemens is down about 40% from its year-high and very close to the 52-week low. Like Total SA, Siemens AG pays an above-average dividend with a 4.66% yield.

While value investors should be enamored with the 0.80 price-to-sales ratio of Siemens AG, growth investors should be enthralled with its 0.38 price-to-earnings growth ratio.

Legendary investor Peter Lynch considers this to be one of the most critical ratios.

According to Wikipedia, the price-to-earnings growth ratio is "a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share (EPS) and the company's expected growth."

In his book, One Up On Wall Street, Lynch wrote that "The P/E ratio of any company that's fairly priced will equal its growth." That means a fairly valued company will have a price-to-earnings growth ratio of 1.

A price-to-earnings growth ratio of 1 is considered to be adequate. But in this case, the lower the better.

The 0.38 price-to-earnings growth ratio for Siemens AG is a very bullish indicator, as is its relative strength index rating of just 37.01.

Even Irish Blue Chips Make the Grade

In late March, it was declared by Ireland's Central Statistics Office that the island nation had slipped back into a recession.

As a result, Accenture PLC (NYSE: ACN), an information technology consulting firm, is down almost 9% in the last month of trading. At $58.38, the relative strength index rating for Accenture PLC is 46.82.

Like Siemens AG and Total SA, Accenture PLC rewards its shareholders with a strong dividend income.

While the dividend income is above average at 2.34%, investors should take note of the low payout ratio. At present it is just 30.80%.

That gives Accenture PLC plenty of cash flow to raise the dividend or initiate a share repurchase program in the future.

Historically, the average payout ratio for a Standard & Poor's 500 company has been about 52%. Siemens AG has a payout ratio of 40.81%. For Total SA, the dividend payout ratio is 41.77%.

In this case, investors have been presented with an ideal scenario with Total SA, Siemens AG and Accenture PLC for accumulating shares in the future.

Each of them will decline as European equities continue to fall from favor, giving long term investors better upside potential.

However, all of these stocks benefit greatly from exporting, particularly to Asia.

As a recent article in The Wall Street Journal by Tom Doctoroff, "What the Chinese Want," noted, "From Nike to Buick to Siemens, Chinese consumers actively prefer Western brands over their domestic competitors."

The earnings growth for each is testament of that growing Asian demand.

Quarterly earnings growth for Accenture PLC is up by 28.85%. For Siemens AG, earnings-per-share growth this year has risen more than 66%. Meanwhile, Total SA is experiencing 15.49% earnings-per-share growth.

All thanks, in part, to higher Asian demand.

Of course, the recent events in the Eurozone lead me to believe the crisis is far, far from over.

Yet, when the market does begin to turn, I have no doubt that European blue chip stocks will be on the rise, rewarding those patient enough and prudent enough to wait for the inevitable recovery.

Now is the time to making your European blue chip stock shopping list.
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  1. Robin Robinson | June 10, 2012

    How do I buy dollar stock in London.?
    How do I follow the price movements ?
    Than you. I enjoy your letters bot your talks aretoo log
    and very repetitive
    Allbest
    R.Robinson

  2. Baelish | June 11, 2012

    I have been looking at Total SA for sometime now and you have done good analysis on that front!

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