Two Reasons On Why European Stocks Have Room To Grow

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European stocks have been laggards this years relative to the decent performance of U.S. stocks. However moving forward, European stocks have better growth potential compared to their American peers for a variety of reasons two of which are discussed in this post.

1. Currently U.S. stocks are expensive while European equities are relatively cheap based on the P/E ratio. For example, as of Dec 11, the P/E for the US market is 19.5. The P/E ratios of some of the major European markets are lower at 15.8, 9.8, 19.4, 15.5 for Germany, Norway, Spain and the UK respectively. French stocks have a P/E of 19.4.

2.  European equities as measured by the MSCI Europe Index have under-performed MSCI USA in US dollar terms since the sovereign debt crisis.MSCI Europe performed well in sync with MSCI USA from 2009 thru mud-2011. But since then European stocks have under-performed again.Though European equities have had an upward trend since mid-2012 they still have more room to grow in order to catch up with American stocks as shown in the below chart:

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MSCI Europe vs USA

 

Source: MSCI

Ten stocks from the Euro STOXX 50 Index are listed below with their current dividend yields for further research:

1.Company: Sanofi (SNY)
Current Dividend Yield: 4.23%
Sector: Pharmaceuticals
Country: France

2.Company: Danone SA (DANOY)
Current Dividend Yield: 2.98%
Sector:Food Products
Country: France

3.Company: BASF SE (BASFY)
Current Dividend Yield: 4,38%
Sector: Chemicals
Country: Germany

4.Company: Siemens AG (SIEGY)
Current Dividend Yield: 3.62%
Sector:Industrial Conglomerates
Country: Germany

5.Company: Telefonica SA (TEF)
Current Dividend Yield: 3.58%
Sector: Telecom
Country: Spain

6.Company: Volkswagen AG (VLKAY)
Current Dividend Yield: 2.48%
Sector: Auto Manufacturing
Country: Germany

7.Company: AXA Group (AXAHY)
Current Dividend Yield: 4.94%
Sector: Insurance
Country: France

8.Company: Banco Santander SA (SAN)
Current Dividend Yield: 9.68%
Sector: Banking
Country: Spain

9.Company: Eni SpA (E)
Current Dividend : 8.53%
Sector:Oil, Gas & Consumable Fuels
Country: Italy

10.Company:Air Liquide (AIQUY)
Current Dividend Yield: 2.65%
Sector: Chemicals
Country: France

Note: Dividend yields noted above are as of Dec 12, 2014. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure:  Long AXAHY and SAN

A Comparison Of The Assets Of Central Banks of Major Economies

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The total assets of the U.S. Federal Reserve stood at over $4.0 Trillion at in December 2013. To be more exact, it reached a record high of  $4,008,062,000,000.

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Federal Reserve Balance Sheet-End 2013

Source: Fed’s assets top $4 trillion, CNN, Dec 19, 2013

It is not just the balance sheets of the Fed and the European Central Bank are expanding, the People’s Bank of China has a bigger balance sheet than the Fed according to an article by Dennis Lim of Franklin Templeton Investments.

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Assets of Central Banks

Source: ASEAN’s Ambitious Agenda by Dennis Lim of Franklin Templeton Investments, Dec 10, 2014

From the article:

If you combine the balance sheets of the Fed, the ECB, the PBOC and the Bank of Japan (BOJ), their combined assets at the end of 2013 stood at over US$14 trillion, which is almost the size of the US economy.

For comparison purposes, the size of the US economy was estimated to be about $17.0 Trillion based on purchasing power parity according to CIA’s World Factbook.

Six Reasons To Invest In Australian Dividend Stocks

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The Australian equity market provides one of the best opportunities for investors hunting for foreign dividend stocks. As a developed economy the country has positive factors that are common in other developed countries such as those in Europe, the US, etc. For example, political risk is practically zero. Though the Australian economy is a resource-based economy there are plenty of companies that operate in sectors outside of natural resources. These firms offer stable income with steady growth and are not highly impacted by the downturn in commodity markets.

Six reasons to consider Australian dividend stocks are listed below:

  1. Unlike firms in other developed markets, Australian companies pay out a high proportion of their earnings as dividends.The payout ratio for Australian companies stood at 75% as of August this year compared to just 31% in Japan, 49% in the UK and about 35% in the U.S.
  2. Dividends paid out by Australian firms are stable compared to their earnings.Hence sustainability of dividends is not an issue.              Click to enlarge Australian Companies-Dividends and Earnings Chart
  3. Of the 11.8% per year total return produced by Australian stocks since 1900, just over half have come from dividends.
  4. Australian dividends provide a positive contribution to the total return during uncertain market conditions.                                                  Click to enlarge Australian Dividend Contribution to total returns
  5. While most countries tax earnings twice – once from companies and once from shareholders – dividends are not taxed twice in Australia due to a unique arrangement called “franking”. This structure encourages Australian firms to pay decent dividends as opposed to hoarding earnings. In the US, many companies irrationally hoard billions of dollars in shareholder wealth with the hope of reinvesting them in the business sometime in the future. Until that happens, investors are forced to settle with puny dividend yields.
  6. The dividend yield for Australia is 4.4% as of Dec 11 according to FT Market Data. This is more than double that of the US dividend yield at just 2.0%.

Source: Why I love dividends and you should too by Shane Oliver, Head of Investment Strategy & Chief Economist, AMP Capital, Australia

One word of caution for US investors on dividend taxation. The general dividend withholding tax rate for US investors (for both regular and retirement accounts) is 30%. However if the dividends paid by Australian companies are fully franked, the withholding tax rate is reduced to 15%.

Five Australian stocks are listed below with their tickers on the US markets and the current dividend yields for further research:

1.Company: Westpac Banking Corp (WBK)
Current Dividend Yield: 6.33%
Sector: Banking

2.Company: Australia and New Zealand Banking Group Ltd (ANZBY)
Current Dividend Yield: 6.29%
Sector:Banking

3.Company: National Australia Bank Ltd (NABZY)
Current Dividend Yield: 6.84%
Sector:Banking

4.Company:Commonwealth Bank of Australia (CMWAY)
Current Dividend Yield: 5.38%
Sector: Banking

5.Company: Telstra Corp Ltd (TLSYY)
Current Dividend Yield: 5.68%
Sector:Telecom

Note: Dividend yields noted above are as of Dec 12, 2014. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: Long NABZY

The Top 10 Pharmaceutical Companies By Size Of Pipeline

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One of the important metrics to evaluate pharmaceutical companies is the total number of drugs that are in the pipeline. Companies not only depend on new drugs for future revenue growth but also look to new drugs in development to replace revenues lost when patents expire on their existing drugs.

The Top 10 pharmaceutical companies based on the size of pipeline is shown in the table below:

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Top 10 Pharma Cos by Pipeline Size

Source: Global Investor 1.14 – Europe, August 2014, Credit Sussie

This list is dominated by firms in the US and Europe with the exception of Takeda from Japan. Roche and Novartis(NVS), two of the world’s top pharma firms are based in Switzerland. According to the Credit Suisse report, Roche Holding AG(RHHBY) is the world’s leader in oncology and vitro diagnostics. When Roche acquired Genentech, it secured access to some of the world’s top scientists and pipeline assets.

Novartis is the world in three categories: oncology, generics and ophthalmology business. In oncology it is behind Roche and in generics it is behind Teva (TEVA) of Israel.Roche and Novartis were among the top 10 global corporate spenders in R&D. They each spent about $10.0 billion in 2013 on R&D.

From an investment standpoint, all the firms listed above are excellent choices for long-term investment. One could not wrong holding shares of J&J(JNJ) or GlaxoSmithKline(GSK) or Novartis(NVS) in the long run.

Disclosure: No Positions