Warren Buffett should come to Europe to tap regional champions at knock-down valuations, including in his favored sectors, Cheuvreux analysts said in an open ‘letter’ to the billionaire U.S. investor detailing their seven top picks.
The firm, CA Cheuvreux, a division of French bank Credit Agricole, is a major broker and investment service provider with branches in many European countries, including the UK.
The bulk of his Berkshire Hathaway investments are tied up in U.S. firms, with just 4 percent allocated to Europe and 2 percent to Asia, but Cheuvreux said European companies such as ABB and Unilever may be worth a look.
“European equities have recently bottomed out, reaching very attractive valuation levels. When we compare the European champions we have selected to deals made by Berkshire Hathaway in the U.S., we see that these European stocks offer higher growth potential and more attractive valuations,” they said.
After a turbulent summer, with the FTSEurofirst 300 falling 10 percent in August alone, the market has stabilized on hopes politicians were getting to grips with the euro zone debt crisis, but remains down 12 percent on the year.
In the United States, by contrast, the Dow Jones industrial average is up just over 3 percent in the same period.
Buffett’s stated aim is to buy firms he can understand, with long-term prospects, operated by honest and competent people and at an attractive price, the broker said, which leaves lots to choose from on this side of the Atlantic.
His track record reveals a preference for insurance, clothes and consumer staples. Picking stocks in those sectors, the broker also suggests targets in the “particularly attractive” capital goods and autos sectors.
In insurance, Cheuvreux picked Zurich Financial and AXA ; in apparel retailing, H&M ; in household & personal care, Unilever ; in capital goods, ABB ; and in automotive, Volkswagen and Daimler .
“The idea is to underline the value-investing opportunity in Europe,” Luca Solca, Cheuvreux’s new head of European research and lead author of the report, said. “Concern about euro zone debt has brought about unprecedented value in many areas.”
Focusing on “sector champions” with good long-term investment opportunities, including sector-leading positions, Solca said Buffett was the logical reference as “he typically takes long-term positions and focuses on very high-quality names”.
Among Buffett’s current European investments are a 3 percent stake in Tesco, a 2 percent stake in Sanofi-Aventis, a 3.1 percent stake in Swiss Re and a 10.5 percent stake in Munich Re, the broker said.