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by M. Fischer and C. Platt, Euro am Sonntag
Es is a diversity that is impressive: 27 nations are united in the European Union, the 50 largest groups in the international community come from at least nine countries and are spread across the continent.
But diversity also has its pitfalls. The heads of government of the member countries are struggling to find the best way out of the corona crisis. The EU Commission’s plan is to launch a debt-financed economic and investment program worth EUR 750 billion. So far, what has been controversial is how much money should be awarded in the form of grants that do not have to be repaid. The EU members are also divided on the conditions under which states can access the program.
Struggled out of the crisis
Negotiations within the EU are usually difficult – many market participants and economists see the current efforts as a real opportunity for Europe to emerge from the crisis. “We are seeing investors become more confident that the economic recovery in Europe is starting,” said Ewout van Schaick, head of the multi-asset department at NN Investment Partners. “The EU Commission’s proposal is not only an important step to combat the consequences of the Covid 19 crisis, but also a further step to advance Europe’s political integration.”
This confidence is already reflected in the stock market. The leading index of the Euro zone, the Euro Stoxx 50, which contains the 50 largest companies in the EU, grew by around 13 percent from mid-May to mid-June. He outperformed the American stock market clear: The broad US stock index S & P 500 only increased its value by about seven percent during this period.
European stocks not only benefit from growing confidence that a way out of the corona crisis will be found, they also benefit from the fact that investors have increasingly turned to cyclical companies and undervalued stocks, so-called value stocks, in recent weeks. They are more strongly represented in European indices than in the US price barometers, in which large IT groups in particular are heavily weighted.
In general, a lot looks a little better in the Old World than in the United States. In the United States, the number of people infected continues to rise, and unrest as a result of racism allegations is shaking the country. In addition, there is a president who behaves rather than calms with his behavior and sees himself under pressure from the upcoming election in November.
“Not least because the pandemic is not handled well, the US is likely to need more time than most European countries to mitigate the negative effects of the pandemic,” said Felix Herrmann, capital market strategist at Blackrock. “European stocks could therefore still be ahead of their US counterparts for a while.”
Not immune to setbacks
Europe is of course not immune to a possible second wave of infection. Neither is the fact that the economy will recover less than hoped in the second half of the year. On Thursday, a week ago, investors were able to experience the effects of the mix of economic worries and fears of an aggravation of the pandemic. According to pessimistic statements by Fed Chairman Jerome Powell, the US stock market collapsed by up to seven percent, while the European one hardly fared better.
With the behavior of the European Central Bank and its boss Christine Lagarde most investors are satisfied. The currencies have expanded their bond purchases and extended the PEPP aid program. An end to the zero interest phase is also more important than ever. This may make savers unhappy, but it helps the European stock market. Because the risk of a new EU debt crisis with the corresponding stock market turmoil is low.
Headquarters of the companies from the Euro Stoxx 50, the leading index of the Eurozone
The shares from Euroland are now an attractive investment for brave investors. Reason enough for uro on Sunday to put the Euro Stoxx 50 through its paces. The editorial team filtered out eight particularly attractive stocks (criteria table below). An actively managed equity fund and an ETF on the index with the 50 largest companies in Euroland round off the top 10 investments.
Tourism is one of the sectors that were really hit by the pandemic, and for weeks nothing really worked for the tourism companies. With the loosening there is now a gentle twitch, but there can be no question of a quick return to the successful pre-corona times. But the good thing is: If problem-free travel is possible again, many people will first enjoy a trip. That could give the industry a boom. In addition, the medium-term perspective is good, because before Corona the travel industry has grown properly worldwide. The crisis should not have changed much in terms of traveling.
But no matter whether you book a flight, a cruise or a ferry: Amadeus IT is part of the game. The Spanish software company operates the computer reservation system of the same name, which is used around the world. Business in Madrilenians means healthy profits spurting in healthy times, the return on equity (RoE) is 33 percent.
The corona crisis has accelerated everyday digital change. Regardless of whether it is a home office, video conferencing or electronic consultation with a doctor: every application requires the appropriate technology and therefore chips. And to make them, you need machines like those from the Dutch company ASML. The holding company is the world’s largest provider of lithography systems for the semiconductor industry. In lithography, light is projected through a blueprint of the pattern to be printed. The blueprint is four times larger than the intended pattern on the chip. The optics are then shrunk and the pattern printed on the silicon wafer.
According to its own statements, ASML is the only manufacturer of lithography devices worldwide that works with extremely ultraviolet light. This cutting-edge technology is apparently well received: 80 percent of all chip manufacturers worldwide are customers of the company based in Veldhoven. This is an exclusive pleasure – a single chip production facility costs around $ 150 million. The company offers chipmakers everything they need to mass-produce patterns on silicon: hardware, software, and services.
The French insurance giant AXA and the Munich alliance are pretty good competitors. Accordingly, the giants – Allianz is number 1 in Europe, then AXA comes second – both are similarly affected by the corona pandemic. While the Munich company paid its shareholders an unabridged dividend in May, the Parisians want to reduce the dividend for 2019 from the originally planned 1.43 euros per share to 0.73 euros. The shareholders will vote on this at the general meeting on June 30th. AXA is therefore following the proposal of the European insurance regulator EIOPA and the Autorit de contrle prudentiel et de rsolution (ACPR), which is responsible for banks and insurers in France. Both regulators had appealed to companies to refrain from paying a dividend because of the corona virus pandemic.
However, a backlash remains open: If the economic conditions permit, the Board of Directors could propose the payment of an additional dividend of up to EUR 0.70. Then the AXA dividend would also be roughly at the level that was targeted before the crisis.
If you look at the shares of the two companies, there are clear differences in the valuation. On the stock exchange, every euro turnover of Allianz is valued at 0.70 euros, at AXA it is just 0.30 euros. A case for bargain hunters.
A large part of the hundreds of billions of euros that are now to give the European economy a boost thanks to the financial packages will flow into various infrastructure measures. The Irish construction giant CRH has pretty much everything in its portfolio that can be built in: from asphalt to cement and concrete to lime, granite and sandstone. This wide range offers the Dublin-based company the opportunity to: to be involved in a wide variety of tree assumptions, be it roads and bridges, water and supply systems or buildings.
And not only in Europe, but also in the USA. Thanks to the numerous financial aid packages from the government, the infrastructure there should also be expanded in the wake of the Corona crisis. In a recent study, the US big bank Citi even classified CRH as the best-positioned cement company in the USA. The share is a clear buy for analysts: out of 22 analysts for the CRH share listed on Bloomberg’s Wirtschaftsdienst, 14 recommend buying the share, and six recommend holding it. Only two advise for sale.
It has been almost two years since the French eyeglass lens and lens manufacturer Essilor and the Italian eyeglass frame manufacturer Luxottica merged into EssilorLuxottica in October 2018. The company, based in Charenton-le-Pont, south of Paris, is now the world’s leading optics company. EssilorLuxottica offers the entire value chain: from simple glasses to custom-made lenses and branded glasses to eye care products.
The company’s brand portfolio reads like the who’s who of the eyewear industry: Burberry and Chanel are just as much a part of it as Oakley and Prada or Ray-Ban and Versace. According to its own statements, the company also has a pool of over 10,000 patents.
With its products, the group succeeds in merging optics and luxury. This makes it less susceptible to economic fluctuations: Despite the Corona crisis, the company is aiming for an increase in sales of between three and five percent for the whole of 2020.
LOral is not particularly affected by the catastrophic slump in sales in the wake of the pandemic. This is astonishing at first, because cosmetic and care products depend quite a lot on the buying mood of consumers. But the French got off lightly in the first quarter of 2020. The sales of the largest cosmetics manufacturer in the world fell by just 4.3 percent compared to the first quarter of the previous year.
On the one hand, it helped the Parisians that they have so-called active cosmetics in their portfolio, which is sold through pharmacies. But pharmacies around the world have been and are largely exempt from the lockdowns. This division was able to grow by twelve percent compared to the previous year. The pure consumer brands, which are also offered in the drugstore stores, which are also open without interruption, were able to hold up quite well at minus 3.5 percent. This helped to somewhat compensate for the slump in the luxury segment (minus eight percent) and especially in the hairdressing business (minus 10.5 percent). The group is optimistic that more cosmetics are already being sold in the important market of China. There, the crisis seems to be largely over.
A bank share is a rather daring investment, especially if it is an Italian bank. The country was particularly hard hit by the Corona pandemic, the economic damage is immense. However, because of this, the shares of major Italian banks have been massively punished and are now very cheap compared to the fundamental valuation indicators.
At least in the first quarter, however, business at Intesa Sanpaolo went quite well: the Turin-based institute made a profit of EUR 1.15 billion – much more than analysts had previously expected at around EUR 750 million. The bank played two factors in the cards: Intesa was able to increase the income and at the same time reduce the costs. The cost / income ratio thus fell significantly from 51 percent in the previous year to 44.4 percent. According to the bank, this is the best value of all European institutes. In addition, the Turin are trying to take over the competitor Ubi Banca. In their view, this could result in high synergy effects. However, it is not yet certain whether the takeover will work out. The Italian antitrust authorities have competition concerns about the deal, which has already been approved by the European Central Bank and Banca dItalia.
In order to keep the competition mild, Intesa has just offered to sell 532 branches to the bank BPER instead of the originally planned 400 to 500. A decision by the authorities could be made in July. If approval is granted, this could give the share a boost.
For a software company, this is anything but an exclamation mark: For the first time, the SAP user fair Sapphire Now was held in June as a purely online event because of the corona pandemic. But at the start, the link sent to address the new SAP boss Christian Klein did not work properly. As a result, the participants had to switch to the Sapphire Now Twitter page. In contrast, the virtual general meeting was less problematic a few weeks earlier. Klein had announced there that after the numerous acquisitions in the past, the focus at SAP would now be on integration.
SAP is one of the few European technology companies that has managed to become a real global player. With its corporate software, the group based in Walldorf benefits from the digital restructuring of the economy, which Corona is now accelerating again.
For some time now, SAP has also been taking a new path with the proceeds and moving away from pure licenses for its software to subscription models for software for rent from the cloud. This area has been growing rapidly for years and also offers the advantage that such income bubbles more regularly and is therefore easier to plan. What many do not know: With a market value of 141 billion euros, SAP is the most valuable listed company in Germany. And with a huge gap. Linde (94 billion) and Siemens (84 billion) followed in places 2 and 3.
Euro Stoxx 50 in check
uro am Sonntag took a close look at the Euro Stoxx to find the most attractive eight stocks (see table below) in the index. The criteria were:
rating In the check, the current rating was determined, measured on the basis of the key indicators of the estimated price-earnings ratio (P / E) for 2020, price-to-sales ratio (KUV) and price bookvalue ratio (KBV). Roughly speaking, it applies to all three key figures that the lower the respective value, the lower the value of a share. The values for KGV and KBV are given in the tableeducated.
dividend uro am Sonntag also looked at the dividend yield. However, this key figure is currently only an indication and is not very reliable, because the corona crisis means that more and more companies are beginning to cut or even cut the dividend. However, this should only be a temporary phenomenon: if companies get better again, many will continue to pay the dividends they paid before the crisis.
Leverage ratio The editors also paid attention to the debt. The relationship between debt and equity was examined. In order to be included in the selection, this ratio could be a maximum of 100 percent (exception: banks).
Performance It is particularly interesting for investors what profit they make from the share. The check examined the total return (i.e. price performance plus dividend payments) a share has generated on average per year over the past ten years. The performance had to be at least 1.5 percent per annum.
The Euro Stoxx 50, which the iShares ETF tracks at low cost, is the best-known index for stocks from the euro zone. It contains the 50 largest companies in the international community. Most values come from France (18) and Germany (14). In terms of market capitalization, the stocks in both countries have an index share of around two thirds. Shares from the Netherlands also have a noticeable weight with twelve percent and from Spain with eight percent. The Euro Stoxx 50 is a fairly cyclical stock barometer. The top sectors are cyclical consumer goods and finance with 14 percent shares each. The IT industry is also relatively prominently represented (13 percent). The largest values are the Dutch semiconductor company ASML and the software group SAP.
The Allianz Growth Euroland is not only one of the oldest funds for stocks from the Eurozone, but also one of the best. It has grown by 142 percent in the past ten years, more than twice the average of its peer group. It is clearly in positive territory for the year, while the competition is in the red on average. Andreas Hildebrand’s recent successes have been on the flags, he has been managing the portfolio for three years. He focuses on stocks whose growth potential, in his view, is not sufficiently taken into account in the current price. He currently finds this mainly in Germany: 40 percent of the assets are invested in this country. The IT sector leads the industry. Hildebrand invested just over a third there. The manager’s top picks include ASML, SAP and the French luxury goods group LVMH. As a further growth company, he gave high weight to the software provider Nemetschek as well as Infineon and Zalando.
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