Four European Favorites

10/03/2013 10:00 am EST

Focus: GLOBAL

Yiannis Mostrous

Editor, The Capitalist Times

The eurozone's economy continues to improve gradually, observes Yiannis Mostrous; in the Capitalist Times, he highlights four favorite stocks to bet on a continued recovery.

Netherlands-based ING Groep (IM:INGA) (OTC:ING) was formed in 1991 by the merger of Nationale-Nederlanden and NMB Postbank Group.

The financial conglomerate continues to deliver on a restructuring plan that aims to simplify its operations and refocus on the company's core strengths. The effort began four years ago, when the company announced plans to dispose of its sprawling insurance operations.

ING Groep's net interest margins have improved steadily in recent quarters, a trend that should continue to support earnings growth.

Credit quality remains a concern, but as long as unemployment remains in check, ING Groep should be able to keep its nonperforming loans to manageable levels. Buy ING Groeop's American depositary receipt (ADR) up to US$15.

With more than 6,000 branches and a 20% share of its domestic market, Intesa Sanpaolo (ISP:IM) (OTC:ISNPY) is one of Italy's largest banks.

Recent data from Italy suggests that the economy has stabilized after two years of recession. An improving economy should benefit Italy's banks, especially institutions that have shored up their balance sheets.

Meanwhile, the company reduced its costs by 10% over this 12-month period, thanks to a 5% reduction in headcount and lower compensation packages.

Intesa Sanpaolo stands to benefit from resisting the lure of growing market share without regard to cost; with one of the strongest balance sheets in Italy's financial sector, the bank can focus on growth opportunities instead of getting its house in order.

Sporting a dividend yield of about 3%, Intesa Sanpaolo's local shares rate a buy up to EUR2.00 and its (ADR) rates a buy up to US$16.00.

With annual sales of US$51 billion, Vinci (DG:FP) (OTC:VCISY) is Europe's largest integrated construction and infrastructure outfit. Concessions, mainly toll roads, account for about 62% of the firm's earnings.

Vinci generates about 90% of its revenue in Europe and about 60% in France; the company controls more than 50% of France's tolled motorways.

Fiscal austerity has limited the pipeline of new construction in Europe, but cash-strapped governments have sought to shore up their balance sheets by monetizing infrastructure assets.

The stock trades at 11.7 times earnings and 11.9 times forward earnings—well below a long-term average multiple of 12.2. With traffic volumes likely to improve with France's economy, Vinci's local shares offer a dividend yield of 4.3% and rate a buy up to EUR45.

Adecco (VX:ADEN) (OTC:AHEXY), the leader in temporary-staffing services, boasts about 5,000 offices worldwide, but generates about 60% of its revenue in Europe.

During the downturn, the company cut costs and focused on allocating capital more prudently; these moves should pay off in spades as the EU economy strengthens.

With analysts' estimates setting a low bar of expectations, Adecco's earnings are poised to surprise to the upside.

In addition, the company repurchased about US$475 million worth of its stock over the past 12 months and recently announced another buyback program of US$330 million. With a yield of 2.9%, Adecco's local shares rate a buy up to CHF70.

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