Low Risk Investing – 4 Euro Zone Stocks to Buy on Dips
June 24, 2010 – by Richard Band
A simple investing strategy for a volatile market is to buy good stocks on the bad days, because entering an investment on such “dips” can really amplify your profits. Of course, this is easier said than done because identifying stocks to buy can be difficult for investors in any market — let alone one that is trending down.
But it can be done by watching things like PE ratios, fundamentals and other measures that take a little bit of homework but can pay off big time when it comes to your retirement money.
To mitigate that risk, I also advise picking up high yield dividend stocks that can protect you with their conservative shares and a guaranteed payout. When investing your retirement money, you can’t underestimate the value of a regular quarterly dividend. High yield dividend stocks are a staple of any retirement investor, particularly in uncertain times. (See also – 8 dividend stocks raising yields.)
As long as the global economy continues to expand, pullbacks like the one we saw in May are likely to represent a buying opportunity. Within a few months, and perhaps a lot sooner, share prices will bounce all the way back — and investors who bought in at the bottom will be nicely rewarded for their investment.
Let’s look at the here and now, and the scary “macro” headlines — riots in Athens, SEC probes on Wall Street, oily goo washing up on Louisiana shores. But amid all this, the broader economy continues to grow at a healthy clip. Even Europe, the epicenter of our latest stock market trouble, is seeing strong economic growth. Most economists estimate euro zone GDP will jump by +1.5% to +2% this year even amid the current turmoil.
That means any day the Dow tanks 100 points or more, buy a little — particularly in European equities. Begin conservatively, with stocks (like pharmaceuticals, utilities and oils) that pay generous dividends. As the market indexes approach or surpass a 10% dip from their yearly highs, add “growthier” names for maximum capital gains, especially technology issues.
Among the continent’s blue chips, I’m particularly fond of these:
Novartis (NYSE: NVS) – Swiss drug maker with a healthy balance sheet and an impressive lineup of new medicines under development. Profits are soaring; the analyst consensus expects a 28% jump in earnings per share this year, to an all-time high. Yet the stock is quoted at only 10X estimated 2010 net. Current dividend yield: 3.9%.
RWE (OTC: RWEOY) – German electric-and gas utility, now trading at an exceptionally low 9X estimated 2010 earnings and a liberal 5.9% dividend yield. If the euro were somehow to fall apart, RWE would go back to reporting earnings (and paying dividends) in the mighty Deutsche mark. If you already own enough RWEOY, consider opening a stake in Germany’s other mega-utility listed below.
E.ON (OTC: EONGY) – Similarly cheap on earnings like RWE and also yielding just south of 6%, EONGY gives you added diversification within a Steady Eddie industry. The company is also beefing up its balance sheet as we speak by selling most of its U.S. properties (for $7.1 billion cash).
Total (NYSE: TOT) – Among the multinational oils, Paris-based TOT boasts a superior exploration record and an eye-popping 6.4% yield. Any investor concerned about the long-term outlook for inflation needs an insurance policy written in oil — and this one comes cheap at just 7X this year’s projected earnings. I’m not alone, by the way, in my enthusiasm for TOT. The stock currently ranks among the 10 largest holdings of American Century Equity.