As trade tensions between the U.S. and China continue to build, some investors are looking to other markets for solid investment ideas. On Wednesday, CNBC reported European indexes posted slight gains as investors attempted to shrug off the mounting uncertainty. As a result, some good investment opportunities may be found among European companies trading below their Peter Lynch values.
A renowned value investor, Lynch developed this method of evaluating stocks based on their price-earnings ratios. With the belief that good, stable companies eventually trade at 15 times their annual earnings, he compared the price of a stock over time to its earnings. He set the standard at a price-earnings ratio of 15. Stocks trading below this level are often good investments since their share prices are likely to appreciate over time, thereby creating value for shareholders. These companies also have good earnings growth and high business predictability ranks.
According to the All-in-One Screener, European companies in the consumer defensive sector that meet these criteria are British American Tobacco PLC (LSE:BATS, Financial), La Doria SpA (MIL:LD, Financial), Magnit PJSC (MIC:MGNT, Financial), Protek PAO (MIC:PRTK, Financial) and Wawel SA (WAR:WWL, Financial).
British American Tobacco
The U.K.-based tobacco company has a market cap of 82.57 billion pounds ($108.4 billion); its shares closed at 36 pounds on Tuesday with a price-earnings ratio of 1.97, a price-book ratio of 1.32 and a price-sales ratio of 3.64.
The Peter Lynch chart suggests the stock is undervalued.
GuruFocus rated British American’s financial strength 5 out of 10. Although the company has issued 24.6 billion pounds in new long-term debt over the last three years, it is at a manageable level since it has sufficient interest coverage. The Altman Z-Score of 1.85, however, indicates the company is under some financial pressure.
The company’s profitability and growth scored an 8 out of 10 rating. While its margins are declining, they still outperform a majority of competitors. The tobacco company is also supported by a moderate Piotroski F-Score of 5 and a business predictability rank of three out of five stars. According to GuruFocus, companies with this rank typically see their stock prices gain an average of 8.2% per year. They also have consistent earnings and revenue growth.
Of the gurus invested in British American Tobacco, the Causeway International Value (Trades, Portfolio) Fund has the largest position with 0.24% of outstanding shares. The MS Global Franchise Fund (Trades, Portfolio), the Wintergreen Fund (Trades, Portfolio) and the Invesco European Growth Fund (Trades, Portfolio) are also shareholders.
La Doria
The Italian food production company, which makes tomato-based canned products, beans, fruit juices and sauces, has a market cap of 366.42 million euros ($427.4 million); its shares closed at 11.82 euros on Tuesday with a price-earnings ratio of 11.94, a price-book ratio of 1.59 and a price-sales ratio of 0.53.
According to the Peter Lynch chart, the stock is undervalued.
La Doria’s financial strength was rated 6 out of 10 by GuruFocus as it has good interest coverage. The Altman Z-Score of 2.54, however, suggests the company is under minor fiscal stress.
Supported by an expanding operating margin and a moderate Piotroski F-Score of 6, the company’s profitability and growth was rated 7 out of 10. The company also has a three-star business predictability rank, which is on watch despite La Doria having good earnings and revenue growth.
No gurus currently own the stock.
Magnit
The Russian company, which operates a chain of supermarkets, convenience stores and hypermarkets, has a market cap of 427.62 billion rubles ($6.4 billion); its shares closed at 4,196 rubles on Tuesday with a price-earnings ratio of 12.95, a price-book ratio of 1.62 and a price-sales ratio of 0.35.
Based on the Peter Lynch chart, the stock appears to be undervalued since it is trading slightly lower than its fair value.
GuruFocus rated Magnit’s financial strength 6 out of 10. Despite issuing roughly 30.2 billion rubles is new long-term debt over the last three years, the company is able to manage it since it has sufficient interest coverage. In addition, the Altman Z-Score of 4.21 indicates it is in good financial standing.
The company’s profitability and growth fared better, scoring an 8 out of 10 rating. Although the operating margin is in decline, it still outperforms 81% of industry peers. The company also has a moderate Piotroski F-Score of 6, meaning business conditions are stable, and a 3.5-star business predictability rank. According to GuruFocus, companies with this rank typically see their stock prices gain an average of 9.3% per year. The rank is on watch, however, as Magnit reported a slowdown in revenue per share growth over the trailing 12 months.
No gurus currently hold the stock.
Protek
The pharmaceutical retailer, which is headquartered in Russia, has a market cap of 41.06 billion rubles; its shares closed at 77.9 rubles on Tuesday with a price-earnings ratio of 7.28, a price-book ratio of 1.23 and a price-sales ratio of 0.16.
The Peter Lynch chart shows the stock is undervalued.
Supported by good interest coverage, Protek’s financial strength was rated 7 out of 10 by GuruFocus. The Altman Z-Score of 2.7, however, indicates the company is under some fiscal pressure as its revenue per share growth has slowed over the last 12 months.
The company’s profitability and growth scored a 6 out of 10 rating, boosted by an expanding operating margin. It has a low Piotroski F-Score of 2, however, which indicates poor business conditions. The company also has a two-star business predictability rank. GuruFocus says companies with this rank typically see their stock prices gain an average of 6% per year.
The stock is not held by any gurus currently.
Wawel
The Polish confectionary company has a market cap of 1.22 billion zloty ($332.2 million); its shares closed at 812 zloty on Tuesday with a price-earnings ratio of 11.19, a price-book ratio of 1.86 and a price-sales ratio of 2.87.
According to the Peter Lynch chart, the stock is trading slightly below its fair value.
Wawel’s financial strength received a perfect 10 out of 10 rating from GuruFocus. Not only does the company have no debt, but it has a comfortable level of interest coverage and a high Altman Z-Score, which indicates it is financially stable.
The company’s profitability and growth scored a 9 out of 10 rating, bolstered by an expanding operating margin, a high Piotroski F-Score of 8 and a four-star business predictability rank. According to GuruFocus, companies with this rank typically see their stock prices gain an average of 9.8% per year. The rank is on watch, however, as Wawel has seen a decline in revenue per share over the last 12 months.
No gurus are invested in the company.
Disclosure: No positions.
