Stoking fears of a global slowdown, the European Central Bank cut its economic growth forecast for 2019 on Thursday.
According to CNBC reporter Fred Imbert, ECB President Mario Draghi said the growth estimate was trimmed to 1.1%, down from December’s forecast of 1.7%. In addition, the central bank said it will start its new targeted longer-term refinancing operations stimulus program in September. It is expected to run through March 2021.
In the face of a potential global recession, investors will want to look for opportunities among consumer defensive companies, which tend to perform well even in hard times since they produce goods that are always in demand. As a result, value may be found among European consumer defensive companies that are trading below Peter Lynch value.
A legendary investor, Lynch developed this strategy in order to simplify his stock-picking process. With the belief good, stable companies eventually trade at 15 times their annual earnings, he set the standard at a price-earnings ratio of 15. Stocks trading below this level are often considered good investments since their share prices are likely to appreciate over time, creating value for shareholders. The GuruFocus All-in-One Screener also looked for companies with a business predictability rank of at least two stars and a 10-year revenue per share growth rate of at least 6%.
European companies that met this criteria as of March 7 were Austevoll Seafood ASA (OSL:AUSS, Financial), Magnit PJSC (MIC:MGNT, Financial), Protek (MIC:PRTK, Financial) and Wawel SA (WAR:WWL, Financial).
Austevoll Seafood
The Norwegian seafood company, which operates in Chile, Norway, Peru and the North Atlantic region, has a market cap of 22.52 billion krone ($2.58 billion); its shares closed at 111.6 krone on Wednesday with a price-earnings ratio of 11.71, a price-book ratio of 2.02 and a price-sales ratio of 1.03.
The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued.
GuruFocus rated Austevoll’s financial strength 6 out of 10. Although the company has issued approximately 916.5 million krone in new long-term debt over the last three years, it is at a manageable level as a result of adequate interest coverage. The Altman Z-Score of 2.45, however, indicates it is under some fiscal pressure.
The company’s profitability and growth scored a 7 out of 10 rating, boosted by operating margin expansion and strong returns that outperform competitors. The company also has a moderate Piotroski F-Score of 4, which suggests operations are stable. The business predictability rank of 3.5 stars out of five, however, is on watch as a result of a slowdown in revenue per share growth over the last 12 months. GuruFocus says companies with this rank typically see their stocks gain an average of 9.3% per year.
Magnit
The Russian retailer, which operates everything from convenience stores and supermarkets to family stores, has a market cap of 393.28 billion rubles ($5.94 billion); its shares closed at 3,859 rubles on Wednesday with a price-earnings ratio of 11.91, a price-book ratio of 1.49 and a price-sales ratio of 0.33.
According to the Peter Lynch chart, the stock is undervalued.
Magnit’s financial strength was rated 7 out of 10 by GuruFocus. While the company has issued 30.2 billion rubles in new long-term debt over the past several years, it has sufficient interest coverage. In addition, the Altman Z-Score of 4.15 suggests the company is in good financial standing.
The company’s profitability and growth scored an 8 out of 10 rating. Despite recording declines for the past five years, the operating margin still outperforms 81% of industry peers. Magnit is also supported by strong returns, a moderate Piotroski F-Score of 6 and a 3.5-star business predictability rank, which is on watch as a result of a slowdown in revenue per share growth over the past year.
Protek
The pharmaceutical distributor and retailer, which is headquartered in Russia, has a 45.02 billion ruble market cap; its shares closed at 85.4 rubles on Wednesday with a price-earnings ratio of 9.26, a price-book ratio of 1.24 and a price-sales ratio of 0.17.
Based on the Peter Lynch chart, the stock appears to be undervalued.
GuruFocus rated Protek’s financial strength 7 out of 10. While the company’s interest coverage is good, the Altman Z-Score of 2.72 suggests it is under some fiscal stress.
The company’s profitability and growth scored a 6 out of 10 rating. Although the operating margin is expanding and returns are strong, the Piotroski F-Score of 2 indicates poor business operations. Protek’s two-star business predictability rank is on watch as a result of a slowdown in revenue per share growth over the last 12 months. According to GuruFocus, companies with this rank typically see their stocks gain an average of 6% a year.
Wawel
The Polish confectioner, which produces a variety of chocolates, wafers and snacks, has a market cap of 1.39 billion zloty ($361.9 million); its shares closed at 930 zloty on Wednesday with a price-earnings ratio of 12.81, a price-book ratio of 2.12 and a price-sales ratio of 3.29.
The Peter Lynch chart suggests the stock is overvalued.
Supported by no long-term debt and comfortable interest coverage, Wawel’s financial strength was rated a perfect 10 out of 10 by GuruFocus. In addition, the robust Altman Z-Score of 10.28 indicates the company is in good financial standing.
The company’s profitability and growth also fared well, scoring a 9 out of 10 rating as a result of operating margin expansion, strong returns and a high Piotroski F-Score of 8, which suggests business conditions are healthy. Wawel’s four-star business predictability rank, however, is on watch as a result of a decline in revenue per share growth over the past year. GuruFocus says companies with this rank typically see their stocks gain an average of 9.8% per year.
Disclosure: No positions.
Read more here:
