European stocks have been hammered this year by fears of slow economic growth, high government debt and the future of the euro. There are few signs of any turnaround on the horizon, but courageous value investors will certainly find some tempting prices.
This screen lists European-based companies that trade in the United States, mostly as American Depositary Receipts (ADRs).
ADRs are certificates issued by U.S. banks representing a specific number of shares in a foreign stock. They simplify the process of owning foreign equities and can help reduce currency risk, although dividends are still paid in foreign currency.
We didn’t use many filters for this screen. But each company had to be profitable and have annual revenue of at least $250-million (U.S.) to make the list.
The screen’s data come from StarMine, a Thomson Reuters service that ranks analysts and gathers earnings estimate data to which it applies proprietary research to detect momentum and other factors.
The first such measurement is called StarMine SmartEstimate, which is a proprietary blend of analysts’ estimates that aims to more accurately forecast upcoming results than the consensus estimate. It gives a weighting to each analyst’s estimate according to his or her past accuracy. SmartEstimate also gives greater emphasis to the timeliest forecasts and less to those that have not been updated for a lengthy period.
Our screen lists the degree of change, up or down, in the SmartEstimate for each company’s EPS this year, measured as a percentage of the original forecast. This column gives an idea of which way momentum is going for the stock. An unusually high number of companies on this list show downward momentum, compared with previous monthly screens.
The percentage difference between the SmartEstimate and the consensus estimate of the Street, called the mean, produces another StarMine metric called the Predicted Surprise. Stocks with positive surprises tend to have above-average price performance. Stocks with negative surprises tend to underperform the market, according to StarMine. The amount of variance is quite small compared with some of the other sectors we have screened in the past, but there are more negative surprises here than we usually see.
The third StarMine measurement applied to this screen is the Analyst Revisions Model, or ARM, which is a measure of the change in analyst sentiment ranging between 1 and 100, with 100 representing the highest rank.
The ARM looks at changes in the consensus over multiple time frames and not just for earnings, but also EBITDA and revenue revisions. It also takes into account the Predicted Surprise percentage shift on these various measures. When this score is near the top (100 – the highest ranking) or bottom (1 – the lowest ranking) of its range, it is highly predictive of future earnings revisions up or down and helps investors anticipate these events, StarMine says.
Companies in the screen are ranked by their ARM scores, in descending order. German and Swiss companies stand on top. Infineon Technologies AG, which is Europe’s second-largest chipmaker, scored an ARM of 99. Its technology is used in consumer electronics and cars. The German-based company raised its full-year sales forecast in July.
At the bottom of the list is STMicroelectronics N.V. , with an ARM score of just 2. The Swiss-based semiconductor company is a major supplier to Nokia Corp. and the shares have suffered as its customer has fallen behind in the smart phone business.
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