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Tuesday, May 25, 2010

Interesting Perspective on Bottom Fishing in Europe

There's a good Wall Street Journal article about the dangers of some of the more popular European ETFs. The principal issue that the authors highlight is that these indexes may be too heavily tilted toward the banks. As someone who lost a fair amount of money on bank stocks during the worst of our financial crisis, I am more discerning about bottom fishing than I used to be, so this caught my attention.

I still think there might be some money to be made in the broad ETFs like EWP, but indeed the better way to play this rout of European stocks is to look for the companies least effected by the crisis, but that have gotten destroyed anyway. The article mentions Telefonica (TEF), which has gotten absolutely clobbered and now yields over 8% with an 8-9 PE, depending on which earnings estimates you use. That's not bad and also Telefonica is unlikely to suffer severe damage. Communications outlays are not as vulnerable as other forms of consumer discretionary spending.

The same goes for stocks here. United Technologies (UTX) is down from $77 to $66 and it really isn't that likely to be effected by primary, secondary, or even tertiary effects of the European crisis.

What do you all think? Does this view make sense to you?


  1. This seems like a particularly good approach for the time being. Communication technology in particular intuitively sounds like a relatively safe and high-potential business to invest in. Now, if I only had some money...

  2. I have to confess that because I was a wild and crazy man I bought some FAS (a triple long bet on the S&P Financial Index) at $24 this morning. That went to $25.50 just between this morning and the close. I don't recommend this for those who abstain from high risk assets because this thing can decline 20% or more in a hurry. Feel free to laugh at me next week if it goes down to $20 in an instant.

    Along the lines of the original post, I am thinking about nibbling at TEF in Spain and TNE in Brazil. For some reason TNE has gotten smashed since the start of the year and it doesn't look justified.