While money managers talk about different ways to select quality companies, investors may also consider diversification, which can reduce risk and expand opportunities.
US investors are more likely to benefit from low-cost index funds, such as the SPDR S&P 500 ETF Trust
,
With patience, they were rewarded in the long run. But some investors prefer to pick individual stocks. Hopefully an individual investor following this type of strategy will spread the risk over dozens of holdings – after all, even seasoned professionals will pick some companies that are headed toward disaster. If a stock collapses, the impact on your portfolio won't be as terrible if the risk is spread out.
You can also stay away from US stocks for more diversification.
Mark Phillips, equity strategist at Ned Davis Research, published a list of 31 “great European companies at a fair price” on January 16. In a report to clients, he wrote that an analysis of the company's data showed that companies were achieving consistent returns on their stocks. The assets (ROA) have consistently outperformed the broad European equity market.
To come up with the list of 31 stocks, analysts at NDR began by identifying “high-quality companies,” which are defined as those with a 10-year average return on investment of at least 5% and no annual return on investment less than zero for any From the past ten years. They then narrowed the list to “great companies,” high-quality companies whose average return on investment over the past two years was higher than their average return on investment over 10 years.
To further narrow down whether “great companies” are trading at fair prices, the NDR team looked at dividend yields (the year's earnings per share divided by the share price). They calculated companies' relative earnings yields by dividing by the average earnings yield for MSCI Europe's equity universe.
NDR concluded with a list of 31 “great stocks at a fair price,” ones that passed the screens and whose recent relative dividend yields were above their three-year averages.
Through backtesting, the NDR found that the first “quality” list would have outperformed the broad European stock market on an equal or market cap-weighted basis (rebalanced every two months) over the past 10 years. Results were best for the “Great” menu and best for the “Great at a Fair Price” menu.
Looking to narrow down your list of “Great European Companies at a Fair Price”
To narrow down the list of 31 companies, we looked at consensus calendar-year earnings per share estimates through 2025 among analysts surveyed by FactSet.
According to FactSet aggregate weighted estimates, the STOXX Europe 600 Index
(which covers about 90% of the free market value of European stocks) is expected to show a two-year compound annual growth rate (CAGR) of earnings per share of 7.4%.
10 of NDR's 31 “Great European Companies at a Fair Price” are expected to show two-year EPS CAGRs of more than 8% through 2025.
Here they are ranked by the stock's expected two-year CAGR:
|
Davide Campari-Milan Nevada |
tape | Alternative dispute resolution | nation | Estimated two-year CAGR through 2025 | Two-year sales compound annual growth rate through 2025 |
|
Sartorius Stedim Biotech SA |
Father: Faint |
SRTOY |
France |
21.8% |
12.4% |
|
Sartorius AG |
Vehicle: SRT |
SSSGY |
Germany |
18.1% |
10.8% |
|
ASML Holdings NV |
In: ASML |
ASML |
Holland |
17.8% |
10.5% |
|
Davide Campari-Milan Nevada |
IT: CPR |
DVCMY |
Italy |
15.4% |
8.2% |
|
Tele Performance SA |
Father: Tip |
TLPFY |
France |
13.2% |
12.7% |
|
EMS-Cgemie Holding AG |
CH:EMSN |
Switzerland |
10.5% |
5.6% |
|
|
Dassault Systems SA |
Father: D.S.Y |
Dusty |
France |
10.1% |
9.0% |
|
Hermes International SCA |
Father: RMS |
He said |
France |
10.0% |
10.5% |
|
Coca-Cola HBC AG |
United Kingdom: CCH |
CCHGY |
Switzerland |
9.8% |
5.2% |
|
L'Oreal SA |
Father: Oh |
LRLCY |
France |
8.5% |
6.9% |
The indices on the left are those in the countries in which the stock is listed. The ADR column contains indicators of American Depositary Receipts (if available), which can be easier for US investors to buy and sell.
The table also includes a compound annual growth rate for projected corporate sales through 2025, which compares with a weighted estimate of 2.6% for the STOXX Europe 600 Index, according to FactSet data.
If you're selecting individual stocks for investments, any screen should be just a starting point for your research. One way to start this process is to click on the indicators.
Click here for Tomi Kilgore's step-by-step guide to the wealth of information available for free on the MarketWatch rates page.
do not miss: Why is Microsoft stock a better investment than Apple stock?
