Tony Daltorio, Investment U Research Saturday, March 6, 2010
\nWall Street seems obsessed with pigs these days.
\nPIIGS, that is \u2013 Portugal, Ireland, Italy, Greece and Spain \u2013 the smaller economies in Europe.
\nMany people worry whether these countries can honor their sovereign debt because of high, already-existing debt levels. And the U.S. Senate might even investigate Goldman Sachs (NYSE: GS) for allegedly hiding Greek debt from European regulators\u2026
\nTalk about locking the barn door after the Trojan horse has already bolted.
\nAlso foolishly, investors have vilified every single company in those countries. Fears have spread that neighboring economies are suspect as well, by association. And in response, investors have either backed away from that region altogether or full-out shorted related stocks.
\nEither way, they don\u2019t know what they\u2019re missing out on. But not to worry. That very panic leaves excellent deals for those smart enough to pick them up.
\nThe Relative Performance of European Companies
\nSpeaking about the situation in Europe, Robert Parkes, equity strategist at HSBC, recently summed it up well:
\n\u201cThe macro factors are affecting the relative performance of companies. Companies in weaker peripheral countries will be hit by their poorer economies. They may also face higher taxes and lose competitiveness with overseas rivals.\u201d
\nFor example, just take the relative performance of Portugal Telecom (NYSE: PT) and Deutsche Telecom (NYSE: DT), two large European telecom companies over the past three months.
\n\uf0b7 Since the middle of November, PT shares have underperformed rival DT by 5%.
\n\uf0b7 During the same time, PT\u2019s bond yield widened about 20 basis points versus the benchmark German bund. DT\u2019s barely moved.
\n\uf0b7 PT\u2019s credit default swaps nearly doubled to about 140 basis points. DT\u2019s fell from 75 to 70.
\nAnd all of this occurred in spite of their similar credit ratings and businesses.
\nCompanies in the utilities and banking sector are showing similar divides across Europe. Since mid-November, the Greek stock market tanked about 25%. Portugal\u2019s fell 11%. But France and Germany\u2019s dropped a mere 4% and 3% respectively.
\nSo what does that all mean?
\nIt indicates that right now, investors care more about location than balance sheets or earnings.
\nAnd that is just plain stupid.
\nEuro Gems
\nWhat sort of companies should investors look to pick up while Wall Street sits transfixed by the repeated showing of My Big Fat Greek Deficit?
\nFundamentals are always important. But also look for businesses with big exposure to the emerging markets. Those up-and-coming economies are growing much faster than the industrialized world, which is saddled with high debt.
\nDespite its base in Greece, Coca-Cola Hellenic Bottling ADR\u2019s (NYSE: CCH) share price jumped nearly 10 per cent in the past three months, helped along by continued strong demand for non-alcoholic drinks in countries like Poland.
\nThe previously mentioned Portugal Telecom and its Spanish rival Telefonica ADR (NYSE: TEF) have a large presence in Brazil. And that connection makes them both worth buying into.
\nTelefonica also controls the Sao Paulo-based, fixed-line phone company, Telesp ADR (NYSE: TSP). And it jointly owns Vivo ADR (NYSE: VIV) \u2013 Brazil\u2019s largest mobile phone operator \u2013 with Portugal Telecom.
\nIf you enjoy playing with more risk, look into large Spanish banks with major exposure to Latin America. That includes Banco Santander ADR (NYSE: STD) and Banco Bilbao ADR (NYSE: BBVA).
\nThose companies should weather the sovereign risk storms much better than others in the region that focus exclusively on domestic economies.
\nIt comes down to this: If a lot of a company\u2019s revenues come from the emerging world, its location is simply not important. So while Greece and the other PIIGS might be in over their heads, the companies based there might not be\u2026 especially if they deal with strong economies elsewhere.
\nThose kinds of businesses have been unjustifiably beaten down and represent excellent buys right now.
\nGood investing,
\nTony Daltorio
\nRelated Investment U Articles:
\n\uf0b7 Enough Dra(ch)ma: The Euro Will Thrive\u2026 When PIIGS Fly!
\n\uf0b7 The PIIGS Nations: Five International Investments for Any Global Stock Watchlist
\n\uf0b7 Two Sagging Economies\u2026 Two Laid-Back Banks<\/p>\n","protected":false},"excerpt":{"rendered":"
Tony Daltorio, Investment U Research Saturday, March 6, 2010 Wall Street seems obsessed with pigs these days. PIIGS, that is \u2013 Portugal, Ireland, Italy, Greece and Spain \u2013 the smaller economies in Europe. Many people worry whether these countries can honor their sovereign debt because of high, already-existing debt levels. And the U.S. Senate might […]<\/p>\n","protected":false},"author":83,"featured_media":66059,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[846],"tags":[],"class_list":["post-17751","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business"],"_links":{"self":[{"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/posts\/17751","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/users\/83"}],"replies":[{"embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/comments?post=17751"}],"version-history":[{"count":0,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/posts\/17751\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/media\/66059"}],"wp:attachment":[{"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/media?parent=17751"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/categories?post=17751"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/tags?post=17751"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}