With fears of inflation and Fed intervention in the U.S. markets, it can be easy to lose sight of the global investing picture. It’s a phenomenon known as “home country bias,” and it’s not a uniquely American occurrence. In fact, it’s quite widespread in most developed economies simply due to investors’ tendencies to more easily recognize and rationalize investing in the names and brands that are familiar to them.
For instance, most American investors allocate 70% of their portfolios to U.S. investments despite the U.S. representing only 50% of global equity. So with concerns about the domestic equity picture, why not consider broadening your portfolio to include more allocation to other developed economies like Europe?
Granted, investing in European stocks can require a bit more leg work as many of them do not garner analyst research coverage in the U.S. Without consensus earnings estimates, stock analysis can be difficult. But you can access useful earnings and revenue estimates on at least a couple dozen European companies. Here are three companies with great fundamentals that you can add to your stock watchlist.
Equinor ASA (EQNR)
Equinor ASA (EQNR – yield 2.2%), formerly Statoil ASA (STO), is an integrated energy company operating in more than 30 countries, and based in Norway, where the government is a majority owner. The company changed its name in 2018 as it seeks to broaden its focus to include new energy solutions – primarily wind – and attract young talent.
Like all energy companies, Equinor took a big hit in 2020 thanks to Covid; revenues declined 28% for the year, and the company failed to turn a profit for the first time since 2016. Now it’s profitable again, and its renewable energy division is leading the charge, partly due to the company selling stakes in several wind farms off the coast of Britain and the U.S. Equinor reported divestments of $1.4 billion in the first quarter. Meanwhile, the company expects traditional oil production to grow 2% this year.
Add it all together, and EQNR shares are having a nice year, up 24.5%, and up 65% since a late-October bottom.
NXP Semiconductors (NXPI)
NXP Semiconductors (NXPI – yield 1.1%) is a chipmaker with operations in more than 35 countries, based in the Netherlands, and serving the automotive, IoT and industrial markets. The company is a rarity in the semiconductor industry, doing its own design and fabrication of its chips.
After a down 2020, NXP is expected grow revenues by 22% this year and earnings per share by 58%. So far, so good: second-quarter revenue expanded 43% year over year, while earnings per share improved a whopping 284% (against the very low bar of last year’s second quarter). With the company making chips for plenty of high-growth industries like self-driving cars, digital payments and IoT, chances are it’s just ramping up its growth again following a rough year.
Investors seem to know it. NXPI stock is up 27% in 2021 and 66% in the last year, and stock just jumped to new highs after the big Q2 earnings beat in early August.
Royal Dutch Shell (RDS-B)
Royal Dutch Shell plc (RDS-B – yield 3.8%) is a more familiar name, the British-Dutch energy company that’s headquartered in the Netherlands. Like Equinor, it has rebounded strongly along with the rest of the global oil industry. And things are about to get better: sales are expected to grow 65% this year, while earnings are projected to improve more than six-fold.
As for RDS stock (get the B shares), it hasn’t popped as much as the other two European stocks on this list, but it is up 14% year to date and 35% in the last year. It’s currently inching back to its March highs above 42; any break above that level and you’ll know a new rally is underway. Add in the healthy dividend and the cheap valuation (it trades at just eight times forward earnings), and there’s a lot to like here, whether you’re a value, growth or income investor.
Those are our favorite European stocks at the moment. However, there are plenty of other stocks outside U.S. markets that we like right now.
Do you own any European stocks right now? Any big winners? Tell us about them!