The silver lining in Europe's mess

By Pat Dorsey, director of equity research for Morningstar


(Money Magazine) -- During the mortgage meltdown in 2008, White House chief of staff Rahm Emanuel quipped that you should "never allow a crisis to go to waste." He was referring to the Obama administration's policy goals, but it's not a bad maxim for investors.

A panic usually means stock prices are declining somewhere in the world, and you can rely on the markets to throw a few babies out with the bath water.

Today another financial mess is plaguing the market -- in Europe, where fears that Greece's debt woes will spread have sent the euro falling about 15% this year. As a result, many European stocks are down around 30% in dollar terms, which means there are plenty of bargains.

An easy way to get at them is through their American Depositary Receipts, or ADRs. These are stock-like instruments that trade on U.S. exchanges and allow Americans to invest directly in foreign firms.

Solid dividend plays

One ADR that has been particularly beaten down is France Telecom (FTE). I know what you're thinking -- a French phone company? Mon Dieu! But it controls about 40% of the wireless market in France, which complements the company's shrinking but still massively profitable fixed-line phone business.

FTE also enjoys large wireless market share in Poland, Spain, and several fast-growing emerging markets. All this combines to generate a ton of cash, which helps support a 7.7% dividend yield for U.S. holders of these New York Stock Exchange-traded ADRs.

Those ADRs have fallen from about $25 at the start of the year to $19 today. But at Morningstar, our analysts think they are worth around $35. While it may take a little while to get there, you'll have a nice dividend while you wait.

Another good bet is National Grid (NGG), a utility that owns or operates every power wire and natural-gas pipe in England and Wales, as well as some utility assets in the northeastern U.S. While NGG hasn't fallen as much -- its ADRs trade at a 18% discount to what Morningstar analysts think they're worth -- the real attraction is its growing pay-outs. National Grid yields about 7%, and we think that dividend will grow nicely over the next several years.

A bet on faster growth

Interested in a less stodgy business? Consider the biotech giant Roche (RHHBY). The company's purchase of Genentech in 2009 gave it the global pole position in cancer therapies, with a 30% market share.

About two-thirds of Roche's pharmaceutical products are protected from generic competition. And only 14% of Roche's sales will go "off patent" between now and 2012.

Yet even though Roche enjoys a level of patent protection that is the envy of the industry, its ADRs trade at a paltry price/earnings ratio of 15. Plus, they sell at a 33% discount to what our analysts believe they are worth. At the end of the day, that's the elixir all value investors crave: solid companies whose shares are mistakenly put on sale.  To top of page

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