Blog > International Investing > Buy Vallourec (VK), Fresenius (FME) & Syngenta (SYNN) for the European recession
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Buy Vallourec (VK), Fresenius (FME) & Syngenta (SYNN) for the European recession

Today's Financial News - Posted August 25, 2008

“With economic growth likely to slow, investors will take a greater interest in firms with clearly visible profitability, operating in strongly growing markets. Here are three examples.” — Cedric de Fonclare

Blogger’s note: Each week our friends over at MoneyWeek in London ask a professional investor where he or she is investing right now. This week Cedric de Fonclare, manager of Jupiter European Special Situations Fund and Jupiter European Opportunities Fund, told them what kind of European stocks he believed would make it through the recession with growth and profits in tact. And he gave three examples: Vallourec (CAC 40:VK), Fresenius Medical Care (DAX:FME) and Syngenta (Zurich:SYNN). Read on below to learn why these three stocks could be your new best friends.

by Cedric de Fonclare

Baltimore — (TFN):  The US slowdown is starting to affect Europe. A strong euro, rising inflation and weak consumer sentiment look set to create headwinds for some European firms. As a whole, the European market trades at around ten times this year’s earnings and has a dividend yield close to 4.5%.

While these are attractive valuations, there are a number of reasons why investors remain wary. First, corporate profits of cyclical firms have been at record levels. Having bagged an unusually high share of the eurozone’s economic wealth, many expect a return to a more normal level as profits get squeezed. Second, analysts have been slow to downgrade their estimates for company earnings in 2008 and 2009. When they do, this could prompt further falls in some share prices.

I was concerned about this and moved early out of debt-ridden cyclical stocks in 2007. This was at a time when their shares were being driven ever higher by mergers and acquisition speculation, which couldn’t last forever. Aware that the profits of cyclical businesses can fall sharply, I ensured my funds held few banks, consumer, construction, engineering or technology firms and no auto firms or airlines.

I started building positions in companies I believe will enjoy steady growth over the next few years because of strong underlying global demand for their goods and services. These companies tend to have little debt and often prove more profitable than analysts expect. Furthermore, their shares are often lowly rated. This offers investors greater opportunities for an upwards re-rating, while providing some protection from severe falls in share prices.

With economic growth likely to slow, investors will take a greater interest in firms with clearly visible profitability, operating in strongly growing markets. Here are three examples… Read on to learn more.

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