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Six "European" Turnaround Picks

 November 23, 2011 10:13 AM
 


by George Putnam, editor The Turnaround Letter

Many companies are considered to be "European" only because they are headquartered in Europe.  

The six companies discussed below are global powerhouses with strong business franchises that span the world. As such, they not be any more vulnerable to a slowdown in Europe than are multinational companies based in the U.S. or in Asia.

Despite their global strength, their stocks have  been weak in recent months as Europe's woes make headlines almost daily.  

In addition to powerful brands and international reach, a number of them have very attractive dividend yields.  

Sure, Europe has a lot of problems, and they are not likely to be fixed anytime soon. But the problems are well known.

Baron Rothschild is reputed to have said, "The time to buy is when there is blood in the streets."  If he was right, this might be a good time to look at European stocks.

Koninklijke Philips Electronics (PHG) is the GE of Europe (but without GE's big financial services business).  And like GE, Philips' stock rallied strongly into the end of the last decade, but has stagnated ever since.  

Management, however, hasn't sat still -- the company has effected significant corporate changes that have streamlined operations.  

While Europe is its largest market, fully two- thirds of revenues are derived outside its home turf.  The latest quarter, though soft, showed some stability in operating momentum, and the stock's valuation and dividend yield are quite attractive.

LM Ericsson Telephone (ERIC) is a global maker of telecommunications equipment.  Results in recent years have been hurt by Ericsson's joint venture with Sony in the ultra-competitive cell-phone handset market, but the company is in the process of getting out of that business.  

Other lines of business are doing well, with particularly good growth in South America and Asia.  

The company should also see opportunities in its service operations, a fragmented market in which Ericsson is considered to be a market leader.   

Novartis (NVS) was born in 1996 as a result of the merger of two Swiss drug makers, Ciba-Geigy and Sandoz. Acquisitions have continued to be a key element in the firm's growth and diversification efforts.

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