European Stocks: What’s Your Pain Tolerance?

You would have to be living under a rock to be unaware of the turmoil caused last week by the British vote to leave the European Union, called Brexit. I am sure many readers are a bit nervous because of the market’s volatility since the vote — sharp drops right after the vote, followed by sharp run-ups.

The turmoil likely isn’t over. In fact, we may very well be at the start of a protracted period of volatility. Just how Britain will extricate itself from the EU is no clearer today than the day the vote was taken, and even somehow ignoring or circumventing the vote has been discussed.

Rather than head for the hills, you might want to view the current situation as an investment opportunity. Writing in The Wall Street Journal after the vote, Jason Zweig commented: “If you bought European stocks earlier this year and now are doubting your own sanity, you aren’t nearly as brave as you thought you were. What you ought to do is become more conservative.

“If, however, you are extremely patient and you have a high tolerance for pain, what you ought to do is buy more. The worse the news out of Europe gets, the more you should buy.”

Here are four European stocks worth a serious look in the face of such unsettling news. Though only four stocks, they offer some diversification by being headquartered in four EU countries and being part of four industries. Importantly, they all also earn a high grade from one of my guru strategies, that of James P. O’Shaughnessy. This is one of a dozen automated strategies I created years ago that mirror how well-known Wall Street investors decide how to invest their funds.

The O’Shaughnessy strategy wants a company’s market cap to exceed $1 billion; have strong cash flow per share (greater than the market’s mean cash flow per share); shares outstanding in excess of the market’s average; and trailing sales at least 1½ times the market’s trailing sales mean. Among the companies that pass all these tests, the strategy then picks the top 50 based on their dividend yield.

The following four companies earn the highest ratings from my O’Shaughnessy strategy. If you have the patience and fortitude to withstand uncertainty and volatility, these companies could perform well by the time the Brexit smoke starts to clear.

Anheuser Busch InBev (BUD): Based in Belgium, this is the world’s largest beer brewer. Dividend yield: 3.18%.

Orange (ORAN): Formerly France Telecom, this French-based company is a major telecommunications provider. Dividend yield: 4.16%.

Allianz SE (AZSEY): Allianz is a very large insurance/reinsurance company headquartered in Germany. Dividend yield: 5.89%.

GlaxoSmithKline (GSK): One of the world’s major pharmaceutical companies, Glaxo is based in the U.K. Dividend yield: 5.50%.

The author: Margareta STROOT

Margareta Stroot, a multi-talented individual, calls Brussels her home. With a unique blend of careers, she balances her time as a part-time journalist and a part-time real estate agent. Margareta's deep-rooted knowledge of the city of Brussels, where she resides, has proven invaluable in both of her roles. Her journalism captures the essence of the city, while her real estate expertise helps others find their perfect homes in the vibrant Belgian capital.

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