8 High-Quality, Dividend-Paying European Stocks Trading Cheaply

TheStreet.com

BOSTON (TheStreet) -- It's not too early for investors to start putting money in European stocks as the values of some of the continent's biggest high-quality companies are trading at valuations much cheaper than those of their U.S. peers.

The interminable sovereign debt crisis is dragging on and has weighed on the MSCI Europe Index, which tracks large-cap stocks. It's down 8.5% this year and 27% over the past 12 months.

And that has hurt share prices across the board. But the prospects for some European-based companies are strong as they continue to make money and are sure to survive a reshuffle of the euro.

What's more, some of them are paying hefty dividends and their revenue base includes such a large component of international sales that the playing field is leveled with their U.S.-based peers.

For example, the Swiss drug giant Novartis NVS , with a 4.82% dividend yield, has a forward price-to-earnings ratio of 9.2 on projected earnings of $3.58 per share this year, while its U.S.-based health care products competitor Johnson & Johnson JNJ , with a 3.92% dividend yield, has a forward P/E of 11.5 on projected earnings of $3.69 per share this year.

The S&P 500 currently has a forward P/E of 12.9 and has gained 3.2% this year.

As a basis for comparison, U.S. international industrial conglomerate General Electric GE has a forward P/E ratio of 10.2% and a dividend yield of 3.73%, while its shares have gained 2.8% this year.

One way to come up with solid stock ideas is to check out what the smart guys are buying by reviewing the holdings of the top international mutual funds.

The Tweedy Browne Global Value fund TBGVX , up about 1% this year, favors the world's largest food and beverage company in consumer staples leviathan Nestle NSRGY , making the Swiss firm its top stock pick at 4.2% of the highly rated $4.6 billion fund.

And the $7.5 billion Oakmark International I Fund OAKIX has the international financial services firm Credit Suisse Group CSGN as its top pick at 4.2% of the fund, although it's shares are off about 16% this year.

Here are eight European-based company stocks of high-quality companies with strong dividends that are trading cheaply based on their price-to-earnings ratio versus their peers, arranged in inverse order of the number of analysts' "buy" ratings:

8. France Telecom FTE

Company profile: France Telecom, with a market value of $32 billion, is the leading telecommunications services provider in France, but also provides services in several other neighboring countries, including Spain and Poland. Business in France accounts for about half its revenue, with wireless services making up 46% of that, while other international revenue is about 19% of its total.

Dividend Yield: 14.86%

Investor takeaway: It has a forward P/E of 7.1, and a current P/E of 6.4, versus the 23.4 of its industry peers. S&P has it rated "buy" with a $19 price target, which is a 50.7% premium to its current price. Its shares are down 20% this year, but have a 10-year, average annual return of 4.2%. Analysts give its shares one "buy" rating, one "buy/hold," and three "holds," according to a survey of analysts by S&P.

7. Nestle NSRGY

Company profile: Nestle, with a market value of $188 billion, is the largest food and beverage company in the world. Through its various subsidiaries, it offers a wide range of branded nutrition, health, and wellness products. The Swiss company's product portfolio includes the internationally recognized brands Nestle, Nescafe, Perrier, Gerber, Poland Spring and Pure Life. Nestle's Nutrition unit acquired Jenny Craig from its founders in 2006. It recently agreed to buy Pfizer's PFE baby food business for $12 billion.

Dividend Yield: 2.48%

Investor takeaway: It has a forward P/E of 5.5 versus the 21.3 current P/E of its industry peers. Its shares are down 0.9% this year, but have a 15-year, average annualized return of 13.5%. Analysts give its shares one "strong buy" rating and three "holds," according to a survey of analysts by theStreet.

6. Credit Suisse Group CS

Company profile: Credit Suisse, with a market value of $25 billion, is an international financial services company, active in securities and capital markets, private banking and insurance.

Dividend Yield: 4.09%

Investor takeaway: It has a forward P/E of 5.8 versus its industry's current 8.9. Its shares are down 18% this year and has recently been trading at or near a 52-week low. Over 10 years, the shares have an average annual loss of 1%. Analysts give its shares two "strong buy" ratings and two "holds," according to a survey of analysts by TheStreet. S&P, which has it rated "hold," said the company "has seen steady net inflows in its wealth management business, but the investment banking business has been hurt by recent headwinds. More aggressive cost cutting and restructuring will help alleviate some pressure on the bottom line, but may cause near-term distractions and pressure revenues, in our view."

5. Siemens SI

Company profile: Siemens, with a market value of $72 billion, is a leading electronics and electrical engineering company serving industrial and energy companies and also has a health care products division.

Dividend Yield: 3.54%

Investor takeaway: It has a forward P/E of 8.9 and a current 13.4 versus its peers' 14. Its shares are down 13% this year but have a 10-year, average annual return of 4.9%. Analysts give its shares three "buy" ratings, one "buy/hold," and three "holds," according to a survey of analysts by S&P. Those same analysts estimate Siemens will earn $8.51 per share this year and $9.23 next year, or 8% earnings growth.

4. Novartis NVS

Company profile: Switzerland-based Novartis, with a market value of $125 billion, is one of the world's largest drug makers. Its products include branded and generic pharmaceuticals, vaccines, as well as eye care and consumer products.

Dividend Yield: 4.82%

Investor takeaway: Its shares have a forward P/E of 9.2, and a current 14.6 versus its peers' 14.1. S&P analysts say that "Novartis is well positioned in branded drugs, as well as in generics, consumer health, eye care, vaccines, and diagnostics. Diversification has been achieved largely through acquisitions, the most recent being Alcon, a leading maker of ophthalmic drugs, devices, and consumer eye care products. Share prices are down 5.6 % this year, but have a 10-year, average annual return of 4.7%. Analysts give its shares four "buy" ratings, one "buy/hold," three "holds," and one "weak hold," according to a survey of analysts by S&P.

3. ABB ABB

Company profile: ABB, with a market value of $36 billion, is a Switzerland-based holding company provides power and automation technologies designed to improve performance while lowering environmental impacts.

Dividend Yield: 4.48%

Investor takeaway: One of the world's largest power infrastructure systems providers, selling to utilities and industrial users, its shares have a forward price-to-earnings ratio of 9.5 and a current P/E of 11.2 versus its peers' 14.9. They are down 13.5% this year, but have a 10-year, average annual return of 7.5%. Analysts give its shares six "buy" ratings, one "buy/hold," four "holds," and one "weak hold," according to a survey of analysts by S&P.

2. Royal Dutch Shell RDS.A

Company profile: Royal Dutch Shell, with a market value of $201 billion, is one of the largest energy companies in the world, with exploration, production, and refining operations worldwide.

Dividend Yield: 4.75%

Investor takeaway: Its shares have a forward P/E of 6.5 and a 6.2 current P/E versus its industry's average of 7.6. Their price is down 14% this year, but they have a 10-year, average annual return of 5%. Analysts give Shell's shares six "buy" ratings, two "buy/holds," and six "holds," according to a survey of analysts by S&P.

Analysts estimate that it will earn $9.23 per share this year and that that will grow by 7% to $9.89 next year. S&P has it rated "hold," with an $83, 12-month, price target, which is a 36% premium to the current price, noting its strong reserves of oil internationally coupled with the uncertain economic environment.

1. Covidien COV

Company profile: Dublin, Ireland-based Covidien, with a market value of $25 billion, develops, manufactures, and distributes medical and imaging devices, pharmaceuticals, and other health-care products worldwide.

Dividend Yield: 1.76%

Investor takeaway: It has a forward P/E of 11.2% and a current P/E of 12.7% versus its industry's average of 20. Its shares are up 15% this year and have a three-year, average annual return of 14%. Analysts give its shares 13 "buy" ratings, six "buy/holds," and three "holds," according to a survey of analysts by S&P. S&P has it rated "strong buy" with a $66 price target, which is a 30% premium to the current price. It says: "We see double-digit earnings per share growth over the long term, led by its portfolio optimization, with emphasis on the device segment, new products and cost control."

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