Berko: European stock picks and pans
Friday, April 04, 2014 7:00 AM
Dear Mr. Berko:
I liked your ideas about foreign stocks. The European stock market is in a recovery, and I think there are bargains to be had on the Italian, German and Spanish exchanges and other foreign exchanges. What do you think of a new Italian issue called Moncler, a designer and retailer of luxury clothing? I would also appreciate your recommendations of several other European issues that have attractive recovery potential.
C.S., Bloomsburg, Pa.
The toad-eating fashionistas and poseurs who party in tropical Boca Raton, Fla., and muggy Miami are strutting their $550 Moncler down vests, $1,400 Moncler down jackets and $1,800 Moncler wool pea jackets. And Moncler’s new retail locations in Sao Paulo and Taiwan, where cold weather is as common as a solar eclipse, are doing a brisk business.
Moncler (MOV.F-$12.80), a testament to conspicuous consumption, is a $3.4 billion-revenue Italian firm known only for its Alps-chic look. The company went public last December at $14 and then zoomed to $20. But though many on the Street are gaga over this over-prissy Italian luxury-goods firm, I wouldn’t go near it with a Sherman tank.
Forewarned is forearmed: Revenues from other uber-luxury-goods companies such as Tod’s, Ferragamo, Cucinelli and Gucci are showing signs of stress. In late January, Merrill Lynch had a sell rating on Tod’s (Italian shoes, leather goods and accessories), which crashed from $145 to $97. MainFirst, the large London brokerage, downgraded Ferragamo in January, and it fell from $29 to $21. Stay away from MOV.F. The down is off the goose, but I believe also that the bloom is off the rose.
Deutsche Telekom (DTEGY-$15.98) – Europe’s largest telecommunications provider, with $81 billion in 2013 revenues – pays an annual dividend yielding an attractive 5.8 percent. This issue should have above-average recovery potential and dividend growth. DTEGY is benefiting as the European recovery slowly improves its pace. And analysts at HSBC believe that 2014 revenues will increase to $83 billion and that earnings will rise from 77 cents a share to 98 cents.
DTEGY’s 229,000 employees make sure that the company’s 131 million mobile customers, 33 million landline customers and 17 million broadband customers are satisfied users. And they are very satisfied because European wireless technology is, admittedly, very superior to what we use in the United States. European cellphone companies focus on one network, whereas U.S. cell companies branched off into several networks, each with a different technology. Therefore, not all U.S. cellphones work in Europe, where, for many reasons, the sound is clearer, calls don’t drop, connections are easier and there are practically zero dead spots.
Industria de Diseno Textil SA (IDEXY-$30.42) is a nicely profitable $22 billion-revenue company that designs, manufactures and retails clothing, footwear, accessories and household products. IDEXY has almost no debt and an impressive net profit margin of 14.3 percent. Its 6,000-plus company-owned and franchised stores boast names such as Zara, Pull & Bear, Massimo Dutti, Bershka, Stradivarius, Oysho and Uterque. And certainly, as the pulse of the various European economies quickens, IDEXY’s revenues, earnings and 30-cent dividend, which yields 1 percent, should improve.
By the way, IDEXY’s biggest competitor is Sweden’s Hennes & Mauritz (HNNMY-$9.05), better known as H&M. Last year, this 116,000-employee retailer generated $19 billion in revenues with just 3,000 stores (nearly twice the unit volume as IDEXY) in just 53 countries. HNNMY has zero debt and posted a 14.3 percent net profit margin, and the 30-cent dividend of this consistently profitable company yields 3.3 percent. And HNNMY’s multilingual founder, Erling Persson, can sing “Hava Nagila” in Latin.
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