Investing: best bets in European stocks
Five years after the financial crisis swept across the world, the recovery in Europe, though modest, is real. We think these European stocks should benefit from the blossoming recovery. Symbols and share prices are for American depositary receipts (ADRs).
Lloyds Banking Group (symbol LYG). The 2008 crisis hit the European financial sector hard, including the venerable British bank. Lloyds might have fared better during the global meltdown had it not bought HBOS, a troubled British firm with interests in banking and insurance. Lloyds's ADRs, which traded at $48 in early 2007 and $19 when the deal was announced, plunged to less than $3 after the takeover was completed in January 2009. Lloyds did some damage control; it closed down the worst of HBOS's businesses and wrote down billions of dollars in bad loans.
Now, Lloyds appears to be on the mend. Although it lost money in 2012, it was expected to have earned 36 cents per ADR in 2013, and analysts see profits of 46 cents per ADR in 2014. At $5.35, Lloyds sells for 12 times estimated 2014 earnings, in line with the average P/E for the financial stocks in Standard & Poor's 500-stock index.
Inditex (IDEXY). The Spanish fashion retailer operates more than 6,000 stores worldwide; its flagship chain, Zara, is represented in almost every major city in the world. Highly regarded for its expertise in "fast fashion," Inditex will surely profit as Europe picks up steam. Raymond James analyst Cedric Lecasble believes the company will outpace the broad European market over the next 12 months. At $29, the ADRs sell for 24 times estimated year-ahead earnings. That is in line with Inditex's biggest competitor, Sweden-based Hennes & Mauritz (HNNMY), otherwise known as H&M.
Deutsche Telekom (DTEGY). As U.S. investors know, phone companies are go-to stocks for dividends. The ADRs of the Continent's largest telecommunication-services provider are no exception; they yield a juicy 5.4 percent, more than both AT&T (T) and Verizon Communications (VZ). Deutsche Telekom has a new CEO, and it has been negotiating to sell its T-Mobile USA subsidiary (it owns 74 percent of the company). Sale of the unit would probably net the German company about $15 billion before taxes and allow it to focus on its European operations, which currently account for 80 percent of earnings. The ADRs, at $16, aren't cheap for a telecom stock, trading for 16 times estimated 2014 profits. But analysts see Deutsche Telekom's earnings jumping 26 percent this year, so the above-average price-earnings ratio seems defensible. Plus, even if the stock does nothing over the coming year, you'll collect that handsome dividend.
(Anjelica Tan is a reporter at Kiplinger's Personal Finance magazine. Send your questions and comments to firstname.lastname@example.org. And for more on this and similar money topics, visit Kiplinger.com.)
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