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10 Best European Stocks for an Income-Rich Recovery

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12.10.2020

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Leading wealth managers including BlackRock, Merrill Lynch and Putnam are advising their clients to invest in foreign stocks to take advantage of better values overseas. And the market's best European stocks are one such store of value-priced diversification.

U.S. stocks are closing on all-time highs yet again, and the S&P 500 is trading at nearly 23 times trailing 12-month earnings. Foreign stocks are a bargain by comparison, trading at a P/E of less than 18, according to Morningstar.

Value is just one of many arguments in favor of international investing. For years, wealth advisors have told clients to invest a portion of their funds overseas to diversify portfolios and mitigate risk.

This advice is particularly timely now given that some European countries are recovering more quickly from COVID-19 than the U.S. In addition to individual-country measures, the European Union passed an $880 billion stimulus package; the U.S. continues to argue about its own follow-up plan.

Economists also anticipate a bigger GDP recovery for Europe next year, with growth pegged as high as 6% versus sub-5% growth for the U.S. Another factor is the present weakness of the U.S. dollar, which makes European stocks and other foreign equities more attractive for U.S. investors.

Here are 10 of the best European stocks you can buy right now. They offer a combination of growth prospects and value. Better still, many of them offer healthy dividend yields, and some are even members of the European Dividend Aristocrats.

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French pharmaceutical Sanofi (SNY, $50.36) owns blockbuster drugs including Lantus for diabetes, Dupixent for eczema and Kevzara for rheumatoid arthritis.

Sanofi – under Paul Hudson, who took the reins just more than a year ago – is refocusing its drug development pipeline on oncology and rare diseases while pivoting away from cardiovascular and diabetes. Lantus has been a big contributor to Sanofi's revenues, but the treatment's profits are declining due to generic competition.

Still, Sanofi "has a strong new drug pipeline that includes dipilumab, for atopic dermatitis and other inflammatory conditions, and its own immuno-oncology candidate, Libtayo (cemiplimab)," writes Argus Research's John Eade, who rates the stock at Buy.

SNY bolstered its oncology pipeline late last year via the $2.5 billion purchase of biotechnology firm Synthorx and in August 2020 agreed to pay $3.7 billion for Principia Biopharma, which has treatments for multiple sclerosis (MS). This gives Sanofi full control over a promising MS treatment in Phase 3 trials, as well as another new late-stage drug for a rare autoimmune disorder that causes skin blistering. Cash for acquisitions isn't an issue, as the company sold its $11 billion stake in Regeneron (REGN) back in May.

Sanofi's overall sales fell 3% in the first half of 2020, but sales in its higher-margin Specialty Care segment grew 17%, led by a strong performance by Dupixent. Meanwhile, earnings per share (EPS) grew by 8.1%. The company is guiding for 6% to 7% EPS growth across the full year.

Other potential catalysts: Sanofi plans to eventually spin off its over-the-counter (OTC) drug business as a separate unit, and it also will cut costs to boost operating margins from 26% to 32%.

SNY is one of the best European stocks from a value perspective, trading at less than 15 times analysts' estimates for next year's earnings, which is 46% less than the health care sector median. Eade says "valuations are attractive" and adds that "we like the fact that the company pays a sustainable dividend."

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Courtesy Zarateman via Wikimedia Com

Red Electrica (RDEIY, $9.39) operates electrical transmission grids in Spain, Peru, Chile and Brazil. The company also owns a telecommunications fiber optic network covering 50,000 kilometers across Spain. Last October, Red Electrica acquired a majority stake in Hispasat SA, the leading satellite infrastructure operator in Spain and Portugal.

Red Electrica plans to diversify its revenues across electricity transmission, telecommunications and technology services businesses to achieve a more balance mix of regulated and unregulated profits. The company is also investing over $7 billion or roughly 25% of total investment spending over five years........

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