6 turnarounds in Europe

These stocks offer generous dividends while investors wait for a recovery.

By TheStockAdvisors Jul 17, 2012 9:48AM

By George Putnam, The Turnaround Letter

 

We think there could be good profit potential in European stocks. But because we're just not too sure when that recovery will occur, for now we prefer European stocks with generous dividend yields.

 

Here are six multinational companies based in Europe with worldwide businesses and relatively high yields, which will pay you while the stocks move up in price.

 

ArcelorMittal (MT) is a Luxembourg-based integrated steel and mining company. It survived the steel shakeout after 2000 and the 2008-09 worldwide downturn. But once again, headline events around the world have investors worried about another downturn.

 

Management is responding by selling assets and bolstering the company's store of iron ore, thus reducing its dependence on a limited number of suppliers.

 

The company is also idling some plants to better balance inventory levels. The stock has sold off to compelling valuation levels of just 0.4 times book and a forward price-to-earnings ratio of below 5.

 

AstraZeneca PLC (AZN) is a leading worldwide pharmaceutical company formed via the 1999 merger of Astra of Sweden and Zeneca of the U.K.

 

Despite more than a decade of changes, including the $15.6 billion acquisition of MedImmune in 2007, the stock has gone nowhere. Generic competition, changes in U.S. healthcare, European malaise and compliance issues have crimped recent results.

 

The company is also looking for a new CEO. But Astra-Zeneca's pipeline has several drugs capable of sparking strong gains, and the financials are solid, as is the 9% dividend yield.

 

Koninklijke Philips Electronics (PHG) has operations that span medical equipment, lighting and consumer electronics.

 

A new CEO who arrived in 2011 is looking to return the company to a growth track. He is making many changes, particularly reducing the company's complex infrastructure that separated management from the customer.

 

The turnaround process will take some time, but Koninklijke Philips has survived 120 years of change, and the decent dividend compensates you while you wait.

 

Siemens (SI) has operations that are well diversified with energy, industrial automation/productivity solutions and healthcare accounting for the bulk of operations.

 

While the company generates some 60% of revenues from Europe, the lion's share comes from Germany. Overall, Siemens operates in 190 countries.

 

While issues in the power transmission segment have led to lowered short-term guidance, the company's efforts to shed unprofitable businesses and bolster higher-growth segments bode well for the long term. We also like the company's growing presence in emerging markets.

 

STMicroElectronics (STM) is the largest European maker of semiconductors and a major presence worldwide.

 

STM has gotten favorable coverage as a supplier of gyroscopes used in Apple products that facilitate the shifting of images from portrait to landscape. But it has also been in the news as a supplier to Nokia, a troubled handset maker.

 

The Nokia problems are largely in the past, however, and STM's innovative technologies bode well for capturing market share and developing new applications.

 

Total SA (TOT), headquartered in Paris, is one of the world's largest integrated energy companies.

 

Declining oil prices, events surrounding a natural-gas production leak and exposure to the general malaise of the European market have led shareholders to sell the stock. But the company is well positioned for long-term growth.

 

Last year was a great year on the exploration front, including three large discoveries, and management plans to be involved in some 60 new drilling projects over the next couple of years.

 

And an aggressive expansion of liquefied natural gas operations in recent years should continue. We believe the pullback in the stock price in recent months is a long-term opportunity.

 

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