Bargains beckon U.S. funds to Europe with S&P 500 past prime

Valuations, Dividends

Companies with lower-than-average valuations and high dividend payouts are the most attractive, according to Pursche, who manages about $800 million as president of Gary Goldberg Financial Services. Shares of Paris-based Total, Europe’s third- biggest oil producer, trade at about 8.7 times projected earnings and Shell at about 9.4, compared with 15 for the Stoxx 600, data compiled by Bloomberg show.

Total, which agreed to buy a stake in InterOil Corp.’s assets in Papua New Guinea last week, has a dividend yield of 5.5%, and The Hague-based Shell pays out 5.5%, Bloomberg data show. Both are twice the 2.5% dividend yield of Exxon Mobile Corp. and more than Chevron Corp.’s 3.1%. Shell, Europe’s largest oil company, plans to cut net spending next year by increasing the pace of asset sales, according to Chief Executive Officer Peter Voser.

Same Business

“When you look at these companies and compare them to Exxon or Chevron here in the U.S., they’re much more attractively priced and they’re in the same business,” Pursche said in a Dec. 4 phone interview. “Thematically, we like the energy space.” He said he’s also buying Kit Kat bar-maker Nestle SA in Vevey, Switzerland, and Novartis AG, Europe’s biggest drugmaker by sales.

Sanofi, the largest drugmaker in France, is poised for a rebound, according to Ghriskey, who manages about $1.5 billion. The company will return to earnings growth this quarter, CEO Chris Viehbacher said in an Oct. 7 Bloomberg Television interview. Its multiple sclerosis pill Aubagio was cleared by the U.K.’s health-cost regulator last week. The drugmaker, which gets about 76% of sales from outside Western Europe, will boost income 13% next year, following three years of declines after losing patent protection on nine products, analyst estimates show.

Drug Ratios

“The issues have become totally resolved,” Ghriskey, who is also buying shares of Seadrill Ltd. for its dividend, said of Sanofi in a Dec. 4 telephone interview. “We should see strong growth numbers, and it’s priced below the large-cap pharmaceutical company average, so valuations are low.”

The stock trades at 13 times estimated earnings, 19% less than the average price-earnings ratio of health care stocks in the Stoxx 600. Sanofi shares are up 4.2% in 2013, compared with 18% for its peers in Europe.

Valuations for European equities climbed 8.6% this year, data compiled by Bloomberg show. The expansion wasn’t enough to make shares too expensive, according to Zemsky, who said businesses that are dependent on U.S. growth will do best. Of about 200 companies in the Stoxx 600 that disclose revenue by country or region, 76 get at least half from outside Europe, data compiled by Bloomberg show.

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