Stocks to Buy: Why Warren Buffett Is Hunting in Europe

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Investment guru Warren Buffett is looking for stocks to buy now in struggling Europe- a region many investors refuse to touch thanks to the destructive Eurozone debt crisis.  

But the Berkshire Hathaway Inc. (NYSE: BRK.A; BRK.B) CEO told CNBC he's bought a couple smaller businesses in Europe over the last 12 months and also took positions in some European equities.

"We've bought some European stocks," Buffett said. "And the fact that there are troubles in Europe, and there are plenty of troubles, and they're not going away fast, does not mean you don't buy stocks. We bought stocks when the United States was in trouble, in 2008 and it was in huge trouble, and we spent $15.5 billion in three weeks in between September 15 and October 10."

One reason for Buffett's interest in Europe: plenty of cheap buys.

"It wasn't because the news was good, it was because the prices were good," Buffett said in the on-air interview of buying European stocks. "And if you believe that Europe is going to be around, which it certainly is, and it's going to have huge amounts of purchasing power with its citizens and all of that - then you actually look at trouble as possibly ... offering you an opportunity to buy."

The Oracle of Omaha acknowledged Berkshire recently spent a couple billion euros on European stocks, adding he remains on the prowl for "good companies at cheap prices."

Even while the economic environment in Europe remains challenged, and consumer behavior in the region has changed, prospects abound.

Stocks to Buy Now: How to Play Europe

We recently spoke with Money Morning Chief Investment Strategist Keith Fitz-Gerald about Europe's investing opportunities.

'There's no doubt that Europe is an inherently risky proposition at the moment. But, sitting out of the markets entirely is even riskier," said Fitz-Gerald.

He said investors looking for profit plays in Europe should consider those companies with a global presence, especially those with strong sales in Asia and South America.

In fact, plenty of Europe's largest companies are not dependent on strong European economic growth. The continent is home to a plethora of world leaders in the luxury goods, autos, engineering and pharmaceutical sectors.

As Barron's recently noted, Europe looks attractive if you're examining certain numbers. The Stoxx Europe 600 trades at roughly 12.4 times forecast 2013 earnings, versus 13.7 times for the Standard & Poor's 500. Moreover, corporate earnings in Europe are projected to grow at 11% this year, better than the 10% expected in the United States.

Fitz-Gerald said if you do venture into European stocks, make sure to look for yield.

"Confine your choice to dividend payers; even though they're at risk from a continued deterioration of the euro, at 4% on average, they're higher than the average 2.5% yield on their American brethren and higher than the global average of 3% at the moment," said Fitz-Gerald.

Stocks to Buy: Five of Europe's Best Profit Plays

For investors who want to sniff out profits Buffett-style, are five steadfast European stocks with solid dividends and genuine global growth potential:

  • Sanofi SA (NYSE ADR: SNY): Headquartered in Paris, France, this multinational pharmaceutical company is the world's fourth-largest by prescription sales. It also develops over-the-counter medications. In addition, Sanofi is the world's largest producer of vaccines through its subsidiary Sanofi Pasteur. SNY has a market cap of $143 billion, employs some 115,000 people and generates annual revenue of around $47 billion. Shares yield an appealing 3.43%. Berkshire owns 4,063,675 shares.
  • Anheuser-Busch InBev NV (NYSE ADR: BUD): This Belgium-based multinational is the world's largest brewer with a global market share of nearly 25%. It's also the third largest fast-moving consumer goods company (companies that sell products quickly at relatively low costs) by firm value. The company's 14 brands, including iconic names such as Budweiser, Corona and Beck, contributed to a frothy quarterly profit of $2.34 billion. Shares yield 2.29%.
  • GlaxoSmithKline plc (NYSE ADR: GSK), a multinational British company headquartered in London, is the world's fourth-largest pharmaceutical company by prescription drug sales. The company also has a large consumer healthcare division that produces and markets oral healthcare and nutritional products, drinks and over-the-counter medicines including Sensodyne and Boost. Shares yield a healthy 4.60%. Buffett's portfolio owns 1,510,500 shares.
  • British American Tobacco PLC (NYSE ADR: BTI): is the world's second-largest tobacco company by sales. It has a market leading position in over 50 countries and operations in nearly 180 countries. Over the past 12 months, shares have gained 6.8% and are trading at a 52-week high of $114.92. Shares yield a smoking 3.66%.
  • Vodafone Group Plc (NYSE ADR: VOD) is the world's second-largest telecommunications company based on subscribers and revenues. The stock has rung up a 25.5% increase year-to-date, and presently trades at a 52 week high $30.80. Behind the rally is increasing chatter the company will receive a bid for its 45% stake in U.S. mobile firm Verizon Wireless. Hedge fund titan David Einhorn speculates Verizon Communications Inc (NYSE: VZ) might bid for all of Vodafone. Shares of the British entity yield a hefty 5.10%.

For more stocks to buy that follow Buffett's investing principles, check out 5 Picks Buffett and Insiders Love Right Now.

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