With the range between the higher and lower valued European stocks compressed by the market there is good scope to dig out valuable stocks not being spotted, says Franklin Templeton Europe fund manager Kenneth Cox.
The narrow range means good companies are being valued closer to poor ones than earnings and profits should justify.
Add to that the view European stocks in general attract better valuations than in the US, then the pickings can be good for stockpickers prepared to work a little bit harder, Cox says.
Meanwhile, structural changes are enabling some companies such as Deutsche Post to take first steps towards improving efficiencies, such as through job cuts to reduce costs.
Cashflow and a de-rating are reasons to look at publisher Reed Elsevier, despite some hesitancy on overall advertising revenue growth through this year and subsequent effects on media companies. Reed as a publisher of scientific and other specialist periodicals may be less affected, Cox adds.
ISS a Danish support services company, and Sweden’s Securitas offer basic services such as security, but are leaders in low growth industries.
BIC, the pens to razors maker, has seen its share price do well out of the consolidation speculation unleashed by the acquisition of Gillette announced by Proctor & Gamble.
Consolidation is seen as a way for prices to be put up partly as a result of reduced capacity coming onto the market once a deal is done.
However, consolidation is not a reason alone to buy stocks, Cox warns. He points to the pharmaceuticals sector, where takeovers in the past decade mean there is little scope for further deals, as there are now simply so few separate names in the market left to merge.
”Consolidation ends somewhere,” he says.
Franklin Templeton’s three to five-year investment focus means Cox’ fund experiences stock turnover of about 20% annually.IFAonline
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