Each week, a professional investor tells MoneyWeek where she’d put her money now. This week: Kathleen Dewandeleer, investment director, European equities, SWIP.
Fears of a sovereign debt default have consumed markets since the start of the year. In Europe, some analysts are even starting to question the validity of the single currency project. But we feel these fears are overdone. In fact, away from the debt crisis, there are reasons to be relatively optimistic about European equities.
Forward-looking economic indicators are encouraging, with survey data pointing to a return to growth at a near-trend pace. The business environment is also improving, with firms once again being rewarded for meeting or beating analysts’ forecasts. Balance sheets have been repaired and firms now have cash to invest. The weakness of the euro (the single currency has fallen by around 18% against the dollar since November) is also a boon to the region’s exporters. And profits made abroad are
further heightened by the falling currency.
That said, investors will need to be more mindful of individual nations’ economic and fiscal problems when choosing firms to buy. Those in core European markets will increasingly find their shares in demand. Good stock selection, however, will be key.
With that in mind, we recently bought France’s Bic (PA: BB), a leading manufacturer of stationery items, lighters and shavers. Bic’s products are simple, well-made and durable, with a middling price range and recognisable brand name. So its goods are sought by consumers across the income spectrum. Bic has a dominant position in its domestic market, as well as good penetration into emerging markets, notably Brazil. Consumer demand in this region is blossoming, with Bic a prominent beneficiary.
Bic recently created a separate promotional products division after it purchased bankrupt US group Norwood PP. This area looks set to grow as firms start to spend on advertising once again. It’s also improving its green credentials by reducing the weight of raw materials it uses, upping the number of refillable items it makes and using recycled plastics for some products. This is a burgeoning market and a potential source of robust earnings. This well-run company, in rude financial health, with minimal debt, is a solid long-term play for investors.
We also like FLSmidth (CO: FLS), a global engineering firm that designs production plants and supplies systems and services to the cement and minerals industries. This Danish group is a market leader and looks set to capitalise on the increase in new construction projects on the back of the global economic recovery. A pick-up in building ventures in emerging markets will further boost FLSmidth’s profits. Mineral projects, too, are on the rise. With a low debt level and reasonable cash flow, this stock is worth grabbing.
Elsewhere, property group Deutsche Euroshop (DE: DEQ) recently caught our eye. This reliable performer has a number of retail outlets across its native Germany. The company is operating at near-full capacity, boasting first-rate earnings visibility and an excellent list of long-term tenants.
Looking ahead, we see a testing period for the eurozone. So far, a number of countries – Germany, Spain, Greece and Italy – have initiated severe austerity packages. So markets are likely to remain cautious. But equities still represent good value and a shrewd investor can look forward to solid returns over 2010.