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European stocks for the long run?


xxx1313
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In my home country (Austria) capital gains from stocks bought this year will remain exempted from tax for many years, whereas gains from stocks bought after January 1, 2011 will be taxed. This is an incentive to buy stocks now for a long period and ideally forever - a discipline Warren Buffett would have no problems with. As a European investor, however, I have some problems to identifiy enough growing bellwether stocks with defendable moat. As I expect the USD to stay weak compared to the EUR in the long run, I would prefer European stocks. This is no absolute k.o. for US stocks in my opinion, but a disadvantage.

 

Up to now, the following European stocks came to my mind as possible targets:

- Nestle

- Unilever (only little growth, however)

- Tesco

- Siemens

- BP (turnaround situation, little long-term growth, but not a bad company in my opinion)

- Pargesa (holding company with investments in Lafarge, GDF Suez, Total and Pernod Ricard)

- SAP AG

- H&M (a bit expensiv now)

 

More ideas would be highly appreciated. Thanks in advance!

 

xxx1313

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Two other Swedish large caps, apart from H&M:

Svenska Handelsbanken - One of the largest Swedish Banks, not exposed to the credit troubles in Eastern Europe, very cautious bank without any incentive programmes for management whatsoever. Made it through both 2008 and the collapse of the Swedish Krona in 1991 pretty much unscathed, while all competitors leaned on the government for support (and/or went bankrupt or merged/got sold off). Allegedly the best stock in the history of the world with a rise of 1.9 million percent since 1900 (excluding dividends, which have been in the high-end spectrum). Credit losses are extremely low. Were scaling back during the boom years when the other banks went haywire, mostly in Eastern Europe with loans without any security, and then started expanding rapidly when the economy struck great blows against the other banks.

 

Swedish Match - Completely dominates the Swedish market for snus (moist powder tobacco) with an 85% market share and the Norwegian with a 60% market share, if I remember correctly. Also big on the US market with snuff, snus, chewing tobacco and cigars. They are refocusing on their core business (smokefree tobacco) and selling off the other parts. Huge buyback programme, and dividends at about 2%. Has historically performed amazingly as well, with their huge margins and near-monopoly position.

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As I expect the USD to stay weak compared to the EUR in the long run, I would prefer European stocks.

 

I have no doubt that the US will devalue.  But do you really think that the Euro-zone will devalue less?  You guys are saddled with all of the problems of the PIIGS who clearly do not have a culture that will enable them to take bad medicine....even the French are resisting the bad medicine that they clearly need.  The Euro zone is a mess and will either need to inflate or disintegrate.  Norway will ultimately be happy they steered clear, and the UK will be happy they at least opted out of the currency union.

 

I would re-think your US vs Euro views.  If you are really concerned about the US, go with Canada or Australia....but in your place, over the long term I'd want to diversify away from the Euro and all of the weak players that look like they will be forced to default.

 

SJ

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3 considerations:

- You really want to be holding something stable in a petro-currency, & let Euro devaluation against that currency boost your return. A Cdn Sched-A bank, or dominant life insurer, should head your list (ie: 8 names)

- If you must stay in Europe you want a beat-up government backed vehicle, where your bigger risk is dilution vs bankruptcy. The expectation is that the company will look very different < 2-4 yrs. BP makes good sense, similar thing for the major german industrials, & the spanish bank.

- If you're restricted to Europe, & low risk, buying a concentration in almost any one or two european majors will do - provided you roll in your purchase over a 1-3yr period. The expectation is that at least some of your buys will be good ones, & the major will eventually either buy out somebody - or get bought out.

 

SD

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Many thanks for your ideas and the discussion!

 

@alwaysinvert:

I am very cautious with banks. Banking is necessary, but banks are not. Less than two decades ago, Sweden had to nationalize its banking system, as far as I remember. Svenska Handelsbanken may be good quality, but banks are not really within my circle of competence. Swedish Match looks good. Another Swedish company I already took a look at is SCA (Svenska Cellulosa). Not a bad company.

 

@StubbleJumper, SharperDingaan:

The Eurozone has its problems, because Europe did not reach a real political union by now. If we had the "United States of Europe", nobody would care about the deficits of Greece, Portugal or Ireland. In the US, California and probably some other states are basically bankrupt, but the market does not care about it. What really scares me is that the Fed clearly seems to accept future inflation, the ECB does not (at least by now). I still think that the Eurozone may survive and make its way. Norway is a small country, running out of oil soon and its sovereign wealth fund is heavily invested in USD an EUR. Still, it might be a kind of a safe haven. Unfortunately, except Statoil and Seadrill I do not know many Norwegian companies. Investing in stable companies in a petro-currency is worth thinking about, thanks for the idea.

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As I expect the USD to stay weak compared to the EUR in the long run, I would prefer European stocks.

 

I have no doubt that the US will devalue.  But do you really think that the Euro-zone will devalue less?  You guys are saddled with all of the problems of the PIIGS who clearly do not have a culture that will enable them to take bad medicine....even the French are resisting the bad medicine that they clearly need.  The Euro zone is a mess and will either need to inflate or disintegrate.  Norway will ultimately be happy they steered clear, and the UK will be happy they at least opted out of the currency union.

 

I would re-think your US vs Euro views.  If you are really concerned about the US, go with Canada or Australia....but in your place, over the long term I'd want to diversify away from the Euro and all of the weak players that look like they will be forced to default.

 

SJ

 

I agree. (And this is coming from an European who has been buying dollars for the last two weeks and will continue to do so if the euro appreciates more against the dollar. Only have fairfax as an overseas investment atm tho...)

 

 

I have some stockidea's I founded mostly based on both moat and growth, not looking at the current prices :

 

- Telefonica

- Danone

- Nestlé

- Vinci SA

- Boskalis Westminster (and watching competitor CFE too but that company is 6 times smaller at +- 500M market cap)

- Fugro

- LVMH

- GlaxoSmithKline

- Siemens

- SBM Offshore

- Novartis

- Sanofi-Aventis

 

 

I have not done any thorough research but this is basically a list of companies I will have a closer look at asap.

 

GBL (The holding which Pargesa partly owns) is also pretty decent but I am afraid Albert Frère doesn't come anywhere near Buffett or Watsa in terms of investing skills. But a great discount to book, that is a fact.

 

(Sorry for any possible "stupid" choices, as I am rather new to investing. ;) )

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Another Swedish company (not sure why this is a recurring theme...) to review is Kinnevik (KINVB).  It's a holding company, and if one believes their reporting (I did - I'm an owner), their 30 year annualized return is 21%.

 

I found it while researching Millicom International - MICC is the largest holding of Kinnevik (40+%), and since KINVB trades at a discount to NAV, you get MICC pretty cheap. 

 

There are other listed holdings, a large non-listed company (pulp), and numerous venture investments.  Geographically, one gets exposure to non-Asian emerging markets (Latin America, eastern Europe and Africa).

 

The current yield is just shy of 3%.

 

The discount to NAV is in the 30-40% range (per US and Swedish analysts; the company's Q3 report calculates the discount at 30%).

 

Their English reporting is excellent and it's easy to buy via the local exchange.

 

 

 

 

 

 

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I am more worried about the EU then the US and I think the US is in terrible shape. At the end of the day Americans will take the pain and the politicians will work things out (like 5 year olds trading baseball cards).

 

The EU doesnt even have a government (well one with any real power) and France is striking over a rise in retirement from 60 to 62. I was talking to a person on a plane over to Europe and I think Europe has it right (we are here to live not work). The problem is the world isnt as it should be, it is what is what it is. You can adapt or be forced to adapt. Those are pretty much your only 2 options.

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I am more worried about the EU then the US and I think the US is in terrible shape. At the end of the day Americans will take the pain and the politicians will work things out (like 5 year olds trading baseball cards).

 

The EU doesnt even have a government (well one with any real power) and France is striking over a rise in retirement from 60 to 62. I was talking to a person on a plane over to Europe and I think Europe has it right (we are here to live not work). The problem is the world isnt as it should be, it is what is what it is. You can adapt or be forced to adapt. Those are pretty much your only 2 options.

 

 

Too many EU countries (the UK and Germany excepted!) have citizens who seem to think that they can get something for nothing.  The people protesting budget cuts in Greece and the folks protesting the need to increase the retirement age in France seem to be living in some parallel universe where GDP and tax dollars just magically appear to make everybody's life better at the cost of nobody.  There seems to be a complete inability to have an "adult conversation" within the countries about the options that are realistically available to them. 

 

The protests in France are the biggest joke in Europe.  The choices about public pensions are relatively straightforward.  You can reduce monthly benefits, increase the contributory period, or increase tax rates.  It's really quite simple....just choose one of those options.  The population went ballistic when the government increased the contributory period, yet I did not see a single placard from protesters asking to instead reduce the monthly stipend, or to increase taxes (at best, the intelligencia would have recommended a tax increase for a mysterious, mythical group known as "the rich").  The response was a series of immature protests like a bunch of petulant children.

 

I am very happy to not be sharing a currency union with countries like that.  Canada took its bad medicine in the 1990s, and I am optimistic that the US will eventually come around.  But those Mediterranean countries just don't seem emotionally equipped to do what is necessary.  Too bad.

 

SJ

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Another Swedish company (not sure why this is a recurring theme...) to review is Kinnevik (KINVB).  It's a holding company, and if one believes their reporting (I did - I'm an owner), their 30 year annualized return is 21%.

 

I found it while researching Millicom International - MICC is the largest holding of Kinnevik (40+%), and since KINVB trades at a discount to NAV, you get MICC pretty cheap. 

 

There are other listed holdings, a large non-listed company (pulp), and numerous venture investments.  Geographically, one gets exposure to non-Asian emerging markets (Latin America, eastern Europe and Africa).

 

The current yield is just shy of 3%.

 

The discount to NAV is in the 30-40% range (per US and Swedish analysts; the company's Q3 report calculates the discount at 30%).

 

Their English reporting is excellent and it's easy to buy via the local exchange.

 

 

 

 

 

 

 

 

Looks very interesting.  Thank you!  Please tell us more about what you like about them.

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There seems to be a complete inability to have an "adult conversation" within the countries about the options that are realistically available to them.  

 

 

I totally agree, and this is what annoys me most about politics around the world. The lack of adults in the room. Its very interesting because you get elected by promising to lower taxes and increase entitlements. We all know that wont work long term but its what they do each session. One day it will give though.

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I am more worried about the EU then the US and I think the US is in terrible shape. At the end of the day Americans will take the pain and the politicians will work things out (like 5 year olds trading baseball cards).

 

The EU doesnt even have a government (well one with any real power) and France is striking over a rise in retirement from 60 to 62. I was talking to a person on a plane over to Europe and I think Europe has it right (we are here to live not work). The problem is the world isnt as it should be, it is what is what it is. You can adapt or be forced to adapt. Those are pretty much your only 2 options.

 

 

Too many EU countries (the UK and Germany excepted!) have citizens who seem to think that they can get something for nothing.  The people protesting budget cuts in Greece and the folks protesting the need to increase the retirement age in France seem to be living in some parallel universe where GDP and tax dollars just magically appear to make everybody's life better at the cost of nobody.  There seems to be a complete inability to have an "adult conversation" within the countries about the options that are realistically available to them. 

 

The protests in France are the biggest joke in Europe.  The choices about public pensions are relatively straightforward.  You can reduce monthly benefits, increase the contributory period, or increase tax rates.  It's really quite simple....just choose one of those options.  The population went ballistic when the government increased the contributory period, yet I did not see a single placard from protesters asking to instead reduce the monthly stipend, or to increase taxes (at best, the intelligencia would have recommended a tax increase for a mysterious, mythical group known as "the rich").  The response was a series of immature protests like a bunch of petulant children.

 

I am very happy to not be sharing a currency union with countries like that.  Canada took its bad medicine in the 1990s, and I am optimistic that the US will eventually come around.  But those Mediterranean countries just don't seem emotionally equipped to do what is necessary.  Too bad.

 

SJ

Although I totally agree with you, I really don't see what's materially different in the US at this point in time. Still holding on to auto manufacturing and whatnot. Maybe the attitude is different in Canada/Australia and most certainly in China and the Asian tigers, but the US seems to have the same problems of feelings of entitlement as most of Europe. At least the winds seems to be blowing in different directions in Scandinavia at the moment, with people finally coming around to realising that production and work is necessary to uphold certain standards of living, but that may be me excercising wishful thinking.

 

 

Regarding Kinnevik, the reason why they are traded at a discount is that the legendary leader of the company, Jan Stenbeck, died a couple of years ago. He transformed the company from an industrial profile (steel and papers) to a huge media and telecom conglomerate. There is still a long term question mark regarding his daughter's ability to steer the company. I think their holdings are hard to analyse, but at least Millicom is a giant cash flow cow. MTG has an awesome market position in Scandinavia and is expanding in the east, but broadcasting businesses is not something I am very comfortable in valuing yet. I have glanced a little at Kinnevik and compared to the rest of the market it seems decently priced.

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Here's a link to their Q3 report (opens as a pdf):  http://www.kinnevik.se/Documents/Pdf/Pressreleases/en/394278.pdf

 

What I liked most was the ability to buy Millicom at a significant discount (admittedly, it makes MICC less of a pure play).  MICC is growing nicely in LatAm and Africa, just bought back 10% debt, and is growing FCF. 

 

When added to MICC (~44% of NAV), other listed holdings make up about 90% of KINVB's NAV, so it's a pretty transparent valuation model.  The remaining 10% is a pulp/paper/containerboard business (there is operational risk for management) and venture.

 

The venture portion is particularly interesting, although I'm not sure it will really move the NAV needle (for what it's worth, they have an indirect position in Groupon, which is a big deal here in Silicon Valley, but will it make a difference?).  That said, they have agriculture investments in eastern Europe and Russia, microfinance in India and Peru, private equity in Africa, and internet businesses in Europe.  I view these odds and ends as the "alternative investments" part of the overall portfolio.

 

 

 

 

 

 

 

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  • 11 months later...

anyone familiar with SKF AB? Swedish Ball Bearing company?

Not overly familiar with the financial specifics but as a Swede I'm aware of the rich 100+ year history of the company. Highly unionized workforce but management has always had extremely good relations with the unions, sort of epitomizing the Swedish model (but predating it). There's a pretty famous story from 1907 of the founder promoting strike leaders after the strike was over "because it would be a shame to see those leadership abilities go to waste". Because of that kind of goodwill the management has always been able to act fiercely in hard times without the unions blocking change, as often is the case. Tom Johnstone is very highly rated as well.

 

Obviously their competitive position is extremely strong but if you are looking at Swedish industrial companies I'd have an extra look at Scania if I were you. I think their valuation seems more compelling. Incidentally, the chairman of SKF is Scania's CEO.

 

I don't have a position in Scania as of now but I am monitoring the stock closely.

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I would diffidently take a look at Nestle, and I’m surprised no one has mentioned Total (TOT) a decent European oil major selling at a discount. I have a bit of the Spanish Media conglomerate Grupo Prisa class B shares (0.175 Euro Cumulative dividend) which are an absolute bear to value, but if I am reading the prospectus correctly I suspect the company will pay .05 Euros per share to class b share holders for 2011 and the remaining .125 Euros will boost the 2012 minimum dividend to 0.30 Euro per share. The shares of Grupo Prisa trade on the NYSE via an ADR (PRIS and PRIS.B) representing 4 shares of Prisa common stock. This is a small position 3% position for me, at my average of $6 (roughly where T2 bought their shares).

 

My favorite non US company and my most concentrated common stock position is in South African Bidvest (BDVSY.PK). The best way to describe Bidvest is a decentralized conglomerate. The company specializes in food services but has branched out to automobiles, retail, investment, transportation, and several others. Bidvest operates much like Berkshire in the way they acquire new companies. Bidvest identifies profitable companies with skilled management and fits the company into a vertically integrated niche within the Bidvest structure to enhance the profitability of the new company. 

 

Since its inception in the 1980’s (I believe 83) Bidvest has been compounding at over 20%. It trades on the JSE at a P/E ratio of 13.5 right now and has a market cap of roughly 5.9 billion US. Over the summer management refused a ~4 billion dollar bid for their African food service division which accounts for roughly 50% of their revenue, so I’d say the whole company is worth more than the current market cap.

I started buying in 2009 in the $20’s, 2010’s when the P/E ratio when to around 12, and have been recently when the Dollar strengthened against the Rand. I might do a write up on Bidvest at some point if anyone is interested. The above is just some rambling off the top of my head.   

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I would diffidently take a look at Nestle, and I’m surprised no one has mentioned Total (TOT) a decent European oil major selling at a discount. I have a bit of the Spanish Media conglomerate Grupo Prisa class B shares (0.175 Euro Cumulative dividend) which are an absolute bear to value, but if I am reading the prospectus correctly I suspect the company will pay .05 Euros per share to class b share holders for 2011 and the remaining .125 Euros will boost the 2012 minimum dividend to 0.30 Euro per share. The shares of Grupo Prisa trade on the NYSE via an ADR (PRIS and PRIS.B) representing 4 shares of Prisa common stock. This is a small position 3% position for me, at my average of $6 (roughly where T2 bought their shares).

 

My favorite non US company and my most concentrated common stock position is in South African Bidvest (BDVSY.PK). The best way to describe Bidvest is a decentralized conglomerate. The company specializes in food services but has branched out to automobiles, retail, investment, transportation, and several others. Bidvest operates much like Berkshire in the way they acquire new companies. Bidvest identifies profitable companies with skilled management and fits the company into a vertically integrated niche within the Bidvest structure to enhance the profitability of the new company. 

 

Since its inception in the 1980’s (I believe 83) Bidvest has been compounding at over 20%. It trades on the JSE at a P/E ratio of 13.5 right now and has a market cap of roughly 5.9 billion US. Over the summer management refused a ~4 billion dollar bid for their African food service division which accounts for roughly 50% of their revenue, so I’d say the whole company is worth more than the current market cap.

I started buying in 2009 in the $20’s, 2010’s when the P/E ratio when to around 12, and have been recently when the Dollar strengthened against the Rand. I might do a write up on Bidvest at some point if anyone is interested. The above is just some rambling off the top of my head. 

I for one would be interested in your write up. Thanks
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btw, why do you think Scania is a better company?

I didn't say they are a better company, I'm too ignorant on the specifics of SKF to make that judgement. But Scania is one of the market leaders in Brazil and Europe and trades at a p/e of 9 and yield of 4,6% despite being in a capital intensive business. And my belief is that trucking is not going to go away very soon, especially since there are no government money to better infrastructure in Europe. They are also at the forefront of corporate management and remains nimble and flexible in response to demand shocks. Compare the performance of other truck producers in 2008 to Scania's. CEO is a sheer management genius who has steered the company since 1989. Heavy emphasis on internal competence, disdain for consulting bs etc.

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I'll put something together on Bidvest in the next week or two. It's been a couple of years since I really dug into the company. I now just read news releases, their magazine, and annual reports to keep up with them. I look at Bidvest like I look at BRK, FRFHF, BAM, LUK, L and other jockey companies; they may not be a deep value stocks, but they provide the opportunity to invest capital in great business (compounding machine) that can be bought at fair prices.

 

I think Bidvest is superior to some of the other jockey stocks mentioned, because they provide staple goods and services to emerging economies. South Africa was recently added to the BRIC index and has a strong commodity based currency and economy like Canada and Australia. Bidvest operates mainly in South Africa, but has expanded to Southern China, Singapore, Brazil, and Central Europe. Think of them as a miniature Sysco that builds a food distribution network in a target economy then leverages the distribution network to provide other essential goods and services once the food service group matures. I'll just have to do a write up. I just keep going on and on about the business model if I get started...

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There seems to be a complete inability to have an "adult conversation" within the countries about the options that are realistically available to them. 

 

 

I totally agree, and this is what annoys me most about politics around the world. The lack of adults in the room. Its very interesting because you get elected by promising to lower taxes and increase entitlements. We all know that wont work long term but its what they do each session. One day it will give though.

 

This is one adult worth listening to. :) (The Jamie Dimon of Canada?)

 

http://www.theglobeandmail.com/report-on-business/read-ed-clarks-speech/article2207111/

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thanks - sounds interesting!

 

I'll put something together on Bidvest in the next week or two. It's been a couple of years since I really dug into the company. I now just read news releases, their magazine, and annual reports to keep up with them. I look at Bidvest like I look at BRK, FRFHF, BAM, LUK, L and other jockey companies; they may not be a deep value stocks, but they provide the opportunity to invest capital in great business (compounding machine) that can be bought at fair prices.

 

I think Bidvest is superior to some of the other jockey stocks mentioned, because they provide staple goods and services to emerging economies. South Africa was recently added to the BRIC index and has a strong commodity based currency and economy like Canada and Australia. Bidvest operates mainly in South Africa, but has expanded to Southern China, Singapore, Brazil, and Central Europe. Think of them as a miniature Sysco that builds a food distribution network in a target economy then leverages the distribution network to provide other essential goods and services once the food service group matures. I'll just have to do a write up. I just keep going on and on about the business model if I get started...

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Still own KINV'B.  Here's the link to their Q3 report http://www.kinnevik.se/Documents/Pdf/Reports/en/Kinnevik_Q3_2011_E.pdf?epslanguage=en (Note: opens as a PDF)

 

Taking the company's reported NAV at face value (which is probably OK given that the vast bulk of the holdings are publicly traded/valued), the Sept 30 price was at a 38% discount (62% upside) to BV/NAV.

 

Roughly 6% of the NAV is in an online-oriented VC firm which has a position in Groupon.  Probably not enough to move the dial, but depending on how the market views the IPO, it should help.

 

Agreed that MICC and Tele2 aren't dirt cheap, but if you like the companies, it's a cheap way to access their equity.  KINV'B is very easily traded, by the way, so no liquidity problems.

 

Moderator:  I found the attached report; I'm not sure what the posting/attachment policy is, but I can remove it (or feel free to remove it).

kinvb.pdf

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  • 4 months later...

Maybe someone had the good sense to buy Scania, I know I sure didn't :D

 

Valuations is starting to get a bit frothy up in Sweden at this point, so I am looking a bit at the continent atm. I don't usually delve into the large caps but doesn't it look like Telefonicá and Vivendi could be good values? They are both so diversified...

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