The Eurozone debt problems have held as a central focus of the financial markets since 2010. The European Central Bank (ECB) has gone to great lengths to prevent volatility in its financial markets and created enhanced liquidity provisions to support its vulnerable banking system. This week’s GDP data, however, indicate that while the extensive stimulus measures by the ECB have effectively “stopped the bleeding” and reduced the possibility that any of the 17 member nations will be forced to leave the Eurozone, reasons for optimism remain scarce.
Single stock alternatives
Here, I will make the case for why the broader European indices should be avoided. But there are still solid values when looking at individual stocks in Europe.
One clear choice is Vodafone Group Plc (ADR) (NASDAQ:VOD), which is the world’s second biggest telecom company (in terms of subscribers and revenue). The stock has seen a rally of 17% year-to-date, but is still holding below its 52 week high of $30.80. With a market cap of $144 billion, investor sentiment behind Vodafone Group Plc (ADR) (NASDAQ:VOD) remains positive, driven largely by negotiations with Verizon to buy 45% of the European company. With reports that Verizon might even opt to purchase the entire company, we are likely to continue seeing investor focus center on Vodafone Group Plc (ADR) (NASDAQ:VOD) throughout the year. Additional positives come with the stock’s impressive yield of 5.1%.
In the pharmaceutical space, GlaxoSmithKline plc (ADR) (NYSE:GSK), remains positioned for sustainable gains. The British multinational is the fourth-largest pharmaceutical company in the world (in terms of prescription drug sales). Additional positives come with the company’s massive consumer healthcare division, which manufactures and sells nutritional and oral healthcare products, beverages and over-the-counter products like Boost and Sensodyne. Year-to-date, the stock has rallied 22% but still trades with a P/E of 20.9. The yield comes in at a strong 4.6%, and stock oracle Warren Buffett’sowns more than 1.5 million shares.
In the beverage space, Anheuser-Busch InBev NV (ADR) (NYSE:BUD) is a strong choice as well. The multinational is based in Belgium and is the largest beer brewer in the world (the company’s global market share is roughly 25%). The company is the third biggest fast-moving consumer goods outfit, with 14 different brands that are well-known to consumers. This list includes iconic names like Corona, Beck, and Budweiser, which contribute $2.34 billion to quarterly profits. The stock yields a stable 2.29%.
Six Straight Quarters of Negative Growth
With the region’s benchmark stock indices (the German DAX, and French CAC 40) all trading near their highs for the year, mounting evidence suggests we are building toward a yearly top in these indices. The combination of weak fundamentals and excessive price valuations creates a scenario where downside risk significantly outweighs upside potential. For those looking to remain invested in stock markets, growth rates in other regions of the world are much more supportive of long-term gains.
The latest economic figures show that Eurozone growth rates for the first quarter of this year dropped by -0.2% (relative to last quarter) and -1% (on a yearly basis). These GDP contractions show that recessionary conditions have now been in place for six straight quarters, beginning near the end of 2011. From a global perspective, these numbers are discouraging given the 2.5% GDP growth posted in the U.S. and the 3.5% increase seen in Japan during the same period. Japan, in particular, has well-documented problems generating momentum in these types of figures, so the negative contrast here is even more surprising.