Over the past few weeks, I've spent a lot of time analyzing the ongoing crisis in Europe. Unlike the economy here in the United States, which is improving however slowly, the economy in Europe continues its downward spiral. Just last week, Spain reported that its unemployment rate rose to 23.6% in February, and data indicate an eighth straight month of contraction in the eurozone's manufacturing sector.
European equity markets have responded in kind. From mid-March through the beginning of this week, the benchmark German Index was down 5.5%, and the corresponding French Index was off by 8.3%. Although this appears treacherous to the typical investor, it's music to the ears of value investors. With this in mind, I've highlighted five French stocks to add to your watchlist, our free stock tracking service here at The Motley Fool.
(And if you're hungry for more, check out my similar lists of Spanish and Irish stocks.)
1. Total
Total is a French multinational oil and gas company, and one of the six "supermajor" integrated oil companies in the world. Last year, Total recorded revenue of $217 billion. According to my Foolish colleague Aimee Duffy, the company is aggressively pursuing operations in and around the African continent that could pay off big time. It's presently either exploring or already drilling off the coasts of Kenya, Nigeria, and the Ivory Coast, among other places. And most recently, it announced plans to drill offshore East Africa in search of large natural gas deposits. Share in Total trade for less than seven times forward earnings.
2. Sanofi
Sanofi is a French multinational pharmaceutical company headquartered in Paris. In addition to a full stable of prescription pharmaceutical products, Sanofi also produces a broad range of over-the-counter products, including Icy Hot for muscle pain, Gold Bond for skin irritation, and Selsun Blue dandruff shampoo. The company sports annual revenue of $46 billion. Its earnings per share have been positive and growing consistently over the last four years, and it trades for a forward earnings multiple of around nine.
3. France Telecom
As its name implies, France Telecom is a telecommunications company based out of Paris, with almost $60 billion in annual revenue. In the middle of last month, our Foolish senior analyst Anand Chokkavelu added the telecom giant to his real-money portfolio. While Anand acknowledges that there are several risks associated with buying the stock, he believes there's more upside than downside at today's price. Among others, it has a proven track record of producing profits over the past five years, and it's taking steps to shore up its balance sheet. The company trades for a forward earnings multiple of around eight.
4. Veolia Environnement
Veolia Environnement is a multinational French company with activities in four main service and utility segments: water, environmental services, energy services, and transportation. It has $48 billion in revenue for the trailing 12 months. Even though the company expects a dividend cut in its future, fellow Fool Brian Stoffel dubbed it his top dividend pick for 2012. Even in the worst-case scenario, Brian believes Veolia will be fine because "trash collection and disposal contracts would be one of the last services to be cut." It's up substantially in 2012 yet trades at a forward earnings multiple of 12.4.
5. Alcatel-Lucent
Alcatel-Lucent is a global telecommunications corporation formed in 2006 when Alcatel merged with Lucent Technologies. It sports annual revenue of over $19.6 billion. When it last reported earnings at the end of March, it met analysts' expectations on revenue and beat on earnings per share. For the quarter, the latter came in at $0.38, 124% higher than the prior-year quarter's $0.17 per share. It trades at a forward P/E ratio of around eight.
Foolish bottom line
Investing in European equities right now is not for the faint of heart. The continent is embroiled in economic malaise and it remains to be seen whether the monetary bloc can even survive the storm.
That being said, of the five, my favorite is Veolia Environnement. It's reasonably priced, pays a healthy dividend yield (even when you take into account an expected dividend cut), and provides services that aren't going away anytime soon: waste management and water distribution. In fact, as my Foolish colleague Brian Stoffel noted, the company recently announced that it will be providing drinking water to the 2.7 million people of Nagpur, India, for the next 25 years.
On the other hand, for those of you with a less voracious appetite for risk, check out the companies identified in The Motley Fool's latest free report: "3 American Companies Set to Dominate the World."
