So Mario Draghi has finally fulfilled his promise of July 2012 and done “what it takes” to prop up the eurozone economies. With the flood of cash come implications for stock markets, and opportunities for savvy investors.
But be warned – European equity investment is not risk free. For those more cautious investors we used equity database Morningstar Select to screen for European stocks with a low Fair Value Estimate uncertainty, a stable economic moat and a standard or exemplary stewardship team at the helm.
Unsurprisingly two of the names that came up – Novartis and Roche are currently slightly overvalued, but Nestle is rated as a four star stock, meaning it is trading at below its fair value. Find Morningstar equity analysts’ views on the three stocks below.
It is worth noting that these three stocks are listed on the Swiss stock market in Swiss francs. Two weeks ago the Swiss National Bank scrapped the exchange rate control which had imposed a maximum value on the Swiss franc of €0.83 since 2011.
Nestle (NESN)
Given its expansive global distribution platform, diverse product portfolio that spans the grocery store, and renewed emphasis on driving cost savings, we expect Nestle will continue generating solid cash flows and returns for shareholders over the longer term. As such, we have afforded the firm a wide moat.
With more than 20 brands that each generate in excess of CHF 1 billion in annual sales, the company has been able to gain favourable shelf space at retailers and charge premium prices for many of its products.
Novartis (NOVN)
In an industry plagued by stagnant growth, Novartis is well positioned with diversified operating platforms and an industry-leading number of new potential blockbuster drugs. Strong intellectual property supporting multibillion-dollar products, combined with an abundance of late-pipeline products, creates a wide economic moat.
Novartis' mammoth sales distribution network provides the company with access to drugs developed externally, as smaller companies typically need a partner to help market their new drugs.
Roche (ROG)
We think Roche's drug portfolio and industry-leading diagnostics conspire to create sustainable competitive advantages. As the market leader in both biotech and diagnostics, this Swiss health-care giant is in a unique position to guide global health care into a safer, more personalized, and more cost-effective endeavour.
We think Roche's market-leading sales in both drugs and diagnostics merit a low uncertainty rating, but note that the firm will continue to rely on innovation and key acquisitions to maintain growth.
