By Investment U
This is a follow-up piece on the EU recovery segment from last week. If you missed it you might want to go back and review the numbers.
The EU is producing all kinds of positive numbers. The most recent: the EU Composite Output Index, which moved from 48.7 last month to over 50 this month. But many investors are still jittery about jumping into equities in a market that has been as badly beaten up as the EU.
The safer alternative is to own U.S. equities, whose performance has been superior in North America, but have still been held back by their exposure to the slump in Europe. Barron’s listed three in a recent article and all of them look very good.
Ford (NYSE: F) has had a great run over the last few years but has given up $0.25 in losses from its EU operation for every $1 in pre-tax profits in its American operations.
Despite paying down debt, being raised to an investment grade credit rating and paying a dividend again, the slump in its European operation has had a huge negative effect on share performance.
And, Ford stock is selling at a P/E of 11. That’s cheap.
Ford’s earnings per share are expected to grow by 17% next year and that will be even greater with less of a drag from its EU operations.
Owens Illinois (NYSE: OI) is next. It has huge exposure to the EU. It is the largest glass container maker in the world and has seen a big drop in its numbers since the Great Recession.
OI caters to the beer and wine industry, which is expected to recover as conditions improve in Europe. And following a wave of consolidation, OI expects to see a significant contribution to its bottom line from its EU operations.
And, it sells for a measly P/E of 10.
DuPont (NYSE: DD) earns about 20% of its revenues in Europe, so any improvement there could add significantly to its bottom line. Add to that the possibility of Dupont selling its chemical division for an estimated $11 billion for better growth prospects in other faster growth areas and you have a solid 3.1% dividend payer with very good prospects.
When you add up the ECB’s pledge to support the euro no matter what, improving consumer sentiment, the improving numbers from last week’s segment and the potential for big bottom line increases in these three big name companies, this play looks like a solid and safer way to play the EU.
ObamaCare Bulls
Next, there are actually Wall Street bulls behind ObamaCare.
Supporters of ObamaCare on Wall Street are few, but Larry Robbins of Glenview Capital Management is the exception and one to pay attention to.
According to Barron’s, he has earned 13.4% per year for his investors over the last 10 years and much of it is due to his focus on healthcare stocks – 40% of his holdings are in companies like Tenet Healthcare (NYSE: THC), Health Management Associates (NYSE: HMA), Community Health Systems (NYSE: CYH), Humana (NYSE: HUM) and McKesson (NYSE: MCK).
Robbins expects ObamaCare to be a boon for certain parts of the healthcare system. His reasoning is that currently a hospital is only reimbursed about 4% of the cost for care provided to the uninsured. Under Obamacare, Robbins says this could jump to as high as 100%.
That’s a lot of money to the bottom line.
Robbins says growth in healthcare averages about 6% a year. He expects the growth rate to jump to the mid-teens by as early as next year. And, if immigration reform gives new citizens access to healthcare, he says it amounts to a free call on healthcare stocks.
Robbins also expects a significant increase in stock buybacks in healthcare.
He sees the entire hospital industry as underleveraged by as much as four times. Tenet for example had so much cash and was so underleveraged in 2012 that they could have bought back every share of stock in 19 months.
Most of us may still be very leery of ObamaCare and its long term effect on this country, but, from an investment perspective, it is hard to argue with the short-term numbers.
Take another look at healthcare.
Finally, the “Slap in the Face” Award: Chump Traps
This week the award was easy to choose and comes to us from a MarketWatch article from last week.
It goes to the SEC and hedge funds.
MarketWatch listed the 10 ways Wall Street plays us for chumps. It included all the usual: high returns without higher risk is just stupid, your success has never been dependent on a smart or a smarter advisor, Wall Street gets rich at your expense, active fund managers do not outperform anything, the average guy cannot and has not ever been able to pick stocks successfully and a few other obvious ones.
But, the finale, No. 10, is the big winner.
Hedge funds have been consistently shown to be the most overpromising and underdelivering of all of Wall Street’s scams of recent times. Most are just that – legal scams – and are now allowed by the SEC to advertise to get your money, too.
Now, as MarketWatch put it, you too can lose money, hand over fist, as fast as the super-rich have been doing for the last 20 years.
Isn’t nice to finally be allowed into the inner circle?
The best way to avoid the Street’s chump traps; use the good common sense your parents taught you. It is always too good to be true.
Article By Investment U
Original Article: The Safer Way to Play Europe
