The Europe Effect: Winners and Losers in the Storm

Europe has been an investor's dream recently -- not necessarily a good dream, mind you, but a rollercoaster ride of hopes and fears tossing to and fro at the whims of a turbulent economy. Even though many investors have suffered from Europe's fiscal mess, you can still find good picks operating from the Continent. Let's take a look at three stocks performing in the midst of Europe's crisis -- and two household names teetering dangerously on European exposure.

Three picks to see you through

All three of the companies below are based in Europe, have grown sales in the past five years, are financially sound, and have solid dividend yields.

Company

Market Cap

P/E

Dividend Yield

Payout Ratio

Sales Growth Over Past 5 Years

Profit Margin

British American Tobacco (NYSE: BTI  ) $97 billion 19.4 4.19% 80.75% 9.54% 22.42%
Diageo (NYSE: DEO  ) $67.9 billion 21.8 2.55% 55.61% 7.54% 19.36%
Seagate Technology (Nasdaq: STX  ) $11.9 billion 4.6 4.29% 12.81% 5.63% 19.16%

Source: finviz.

U.K.-based British American Tobacco, the second-largest publicly traded tobacco company in the world (next to Phillip Morris), pays a great dividend of about 4.2%. The company also sports a solid profit margin and has managed to grow revenue despite restrictive governmental regulations in most of its global markets.

Alcoholic-beverage maker Diageo operates an extremely diversified product portfolio out of the U.K. Odds are if you've ever taken a sip of boozy goodness, you've enjoyed a Diageo product. The company offers well-known brands including Johnnie Walker, Smirnoff, Captain Morgan, Jose Cuervo, and Guinness. It also recently raised its dividend by 8%.

Likewise, Ireland-based data storage corporation Seagate Technology is quite adept at making money. While sales growth over the last five years only clocks in at 5.6%, sales growth in the past year blossomed to more than 36%. It's good to see this accelerating growth, which bodes well for the company moving forward -- especially as the cloud infrastructure expands and demand increases.

Not every bet's a safe one
While the stocks above look strong, Europe's ongoing sovereign-debt crisis -- and, really, everything crisis -- has placed numerous American companies in danger. The Fool has written extensively on the mounting hurdles American automakers face in Europe, but they're hardly alone. Let's check out two major stocks facing trouble on the Continent.

Computer and electronics staple Hewlett-Packard (NYSE: HPQ  ) faces far more problems than just Europe, with CEO Meg Whitman planning to slash more jobs to compensate for heavy losses. Europe's market climate and fiscal woes will certainly slow down any restructuring planned for the company, however.

HP raked in more than 30% of its total sales from Europe in 2011, a dangerous number for a company treading on tenuous ground. Sixty-five percent of total sales were from outside the U.S., but with the growth of mobile and tablets and the decline of PCs in the consumer market, HP will be hard-pressed to sell its computers to a European population suffering through severe unemployment and drastically reduced flexibility in discretionary spending.

The PC market alone declined more than 2% in the second quarter of 2012 as mobile-computing shipments jumped 4%. HP's own market share still leads its competitors, but the company lost ground year over year to competitors and saw nearly 400,000 fewer shipments to Europe that quarter than the prior year's Q2. Given that HP's own mobile business flatlined with its anemic Touchpad tablet, the company will struggle to find profitability in dwindling European business.

Video game maker Electronic Arts (Nasdaq: EA  ) fights its own demons, but European sales recording 44% of total revenue won't help. With 52% of revenue coming from abroad, a cut in sales to the Continent would punish EA's top line. The video game industry as a whole took a beating last month as sales of games and consoles plunged more than 20%. Overall, game software sales are down 11% year over year -- not a good sign for EA and its industry peers.

Europe certainly hasn't helped the industry. Major European video game retailer GAME lost credit insurance earlier this year, drawing concern from EA. With EA's latest projects falling short of expectations -- especially major online offering Star Wars: The Old Republic, which has fallen from 1.7 million paying subscribers upon its release in December to fewer than a million -- the company will find it tough to continue selling pricey offerings to cash-strapped European consumers.

Stormy seas ahead

Investors can only hope Europe figures it out in the future. European Central Bank chief Mario Draghi's bond-buying pledge might have restored some confidence in the Continent, but the eurozone will have a tough fight ahead as it tries to restore a measure of economic stability. Ultimately, these five stocks above won't be the only movers and shakers in the murky waters of Europe's economy -- but if you want your portfolio to rise above the crisis, you can make the right moves for success now.

To help you predict more winners of the future, The Motley Fool has prepared a free special report to keep you up to date. Check out "3 Companies Ready to Rule Retail" to see what's in store. Don't get caught unaware; grab your free copy by clicking here.

Fool contributor Dan Carroll holds no positions in the stocks mentioned in this article. Neither does Fool contributor John Divine, who you can follow on Twitter @divinebizkid and on Motley Fool CAPS @TMFDivine. Motley Fool newsletter services have recommended buying shares of Diageo. The Motley Fool has a disclosure policy. 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.


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  • Report this Comment On September 13, 2012, at 9:33 AM, SirOvidius wrote:

    Is interesting to remark the frequency and intensity of dedicated time and negative energy that MF is spending trying to convince the people about what their minority calls "a futureless company". Just desgususting and irational in case of HP!

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