3 Eurozone Stocks That Aren't as Scary as You Think

If you spend too much time staring at the headlines, you'll likely have a tough time coming up with any reason to invest in a company based in Europe.

Europe, and, in particular, the rowdy rabble that share the euro currency, really is in rough shape. Banks have made a lot of bad loans, governments have borrowed too much, and with very few exceptions, the region's individual economies are in decline.

But it'd be a mistake to assume that just because a company is based in Europe that its business is solely levered to the European economy. Just like the U.S.' largest businesses, many European multinationals count on areas outside of their home continent for a big slice of their business. But because of the dire eurozone headlines, many of these businesses can currently be bought at a discount to comparable companies in the U.S.

1. Telefonica (NYSE: TEF  )

 

Telefonica

Verizon

Headquarters Spain United States
Forward Price-to-Earnings Ratio 7.1 15.9

2011 Revenue Share

   
Europe 51% 0%
North America 2.5% 100%
Rest of World 46.5% 0%

Source: S&P Capital IQ, author's calculations.

If you want exposure to U.S. economic conditions, the major telecom providers are a great way to do it. As the table above shows, Verizon (NYSE: VZ  ) is fully tilted toward U.S. exposure and archrival AT&T is similarly focused on the states.

The same doesn't hold true for Spain-based Telefonica. Though the company derived just a little more than half of its 2011 revenue from Europe, much of its business is outside of Europe -- in Latin America to be exact. Not only does this reduce downside liability by having a significant exposure outside of rocky Europe, but it's an upside for the company since it provides the company a major presence in fast-growing economies like Brazil.

And if you're still concerned about the European exposure -- more than half of which comes from Spain itself -- consider this as well: The company's Latin American operations are more profitable, so while 46.5% of revenue comes from the region, it accounts for more than 60% of Telefonica's operating income.

2. Total (NYSE: TOT  )

 

Total

ExxonMobil

Headquarters France United States
Forward Price-to-Earnings Ratio 6.3 9.2

2011 Revenue Share

   
Europe 67% 24%*
North America 9% 40%
Rest of World 24% 36%

Source: Capital IQ, author's calculations. *ExxonMobil does not fully break out its non-U.S. exposure.

To be sure, Total has hefty European revenue exposure, but don't let that throw you off. For one, much of that exposure comes from France itself -- it's 23% of Total's total revenue -- and that's one of the strongest spots in the eurozone. But more importantly Total is selling global commodities, so its fate will hinge a lot more on the ups and downs of the energy markets than the specific European economy -- though that's not to say that a true collapse in Europe wouldn't have serious consequences for energy markets.

In all, this is a strong, stable, global energy player that you can pick up at a discount to most U.S.-based names.

3. Siemens (NYSE: SI  )

 

Siemens

General Electric

Headquarters Germany United States
Forward Price-to-Earnings Ratio 9.8 11.4

2011 Revenue Share

   
Europe 60%* 20%
North America 21%** 47%**
Rest of World 19% 33%

Source: Capital IQ, author's calculations. *Includes Europe, CIS, Africa, and Middle East. **United States only.

Unfortunately, Siemens doesn't fully break out its European revenue, but instead lumps Europe, Commonwealth of Independent States (CIS), Africa, and the Middle East together. What we do know, then, is this -- of the 60% figure above, some of the revenue is coming from up-and-coming non-European economies like Russia, Egypt, Pakistan, and Nigeria. Additionally, 27% of Siemen's total revenue comes from Germany itself, which, like France, is one of the stronger eurozone economies.

As an industrial and energy-equipment giant like General Electric (NYSE: GE  ) , Siemens is very economically sensitive -- whether we're talking about the eurozone specifically or the broad global economy. But with headlines blaring about eurozone risk right now, the stock offers a meaningful discount to non-Europe-based competitors.

Or... go American
I've rated all of three of the stocks above as outperformers in my CAPS portfolio. However, discounted or not, buying individual Europe-based stocks may not be within everyone's comfort zone. And depending on your particular situation, it may not be appropriate anyway. For those that want global exposure, but want to stick with U.S.-based companies that they know and love, you can check out three great investment ideas in The Motley Fool's free special report "3 American Companies Set to Dominate the World." Click here for your free copy.

Motley Fool newsletter services have recommended buying shares of Total. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Matt Koppenheffer owns shares of Siemens, Total, and AT&T, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


Read/Post Comments (5) | Recommend This Article (36)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 07, 2012, at 5:44 PM, mikecart1 wrote:

    Agree on all 3 companies:

    TEF - profitable and huge dividend paying telelphone company. People won't stop calling so this stock could be solid. Unsure of dividend since it is sky-high but it is still good. Basically like buying VZ or T but for the world.

    TOT - own this stock. Will bounce back when oil becomes good again.

    SI - won't be going away anytime in this lifetime

    All 3 are great. Not so happy with the tax consequences though. 15% off the top makes me mad.

    :)

  • Report this Comment On June 07, 2012, at 5:52 PM, Zinj wrote:

    Pakistan is considered Middle East? Since when?

    the western, unpopulated extremes of Pakistan are more than 1600 miles away from the Mediterranean Sea.

  • Report this Comment On June 07, 2012, at 10:31 PM, TSIF wrote:

    The authoer did not say Pakistan was Middle East. "of the 60% figure above, some of the revenue is coming from up-and-coming non-European economies like Russia, Egypt, Pakistan, and Nigeria"

    Nice Ticker choices. All near 52 week lows and all with dividends, (although I agree with MIkeCart1 that the foreign tax structure is a "pain". When Greece votes on the 17th I'll be watching them.

  • Report this Comment On June 08, 2012, at 6:14 AM, shamack wrote:

    Not a bad selection but it's about time we heard more of excellent European companies giving good returns and reasonable safety such as Dassault, CRH, Tullow or Kentz.

  • Report this Comment On June 08, 2012, at 2:20 PM, JadedFoolalex wrote:

    Excellent recommendations! These and several others will go a long way to making your portfolio one to envy!

    Shamack also offers some goodies for those willing to invest in some good companies.

    As for 15% off the top, I wish I paid that little!! How about 35% withholding then 22% for dividend taxes, Gentlemen!! Ouch!

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