It’s A Great Big World Out There

Those considering a trip across the pond in 2023 might lament not taking it last fall, as the euro bottomed out at 0.96 € to the dollar at the end of September, moved above parity in November and buys $1.09 as of this writing.

Certainly, this rebound in the euro / weakness in the dollar has bolstered European equities, which were already moving higher in Q4. In fact, the Euro Stoxx Index in dollar terms has soared 40% from 09.30.22 to 01.26.23, compared to a 13% advance in its U.S. counterpart, the S&P 500.

Of course, the performance of foreign markets had been lagging that of the U.S. for quite some time, so there is still plenty of opportunity for equity investors to look abroad.

FINDING VALUE IN EUROPE

Many are familiar with the tenets and benefits of diversification, which extend to the economic tides across geographies and even to swings in the currency markets. This diversification is fairly simple to implement with American Depository Receipts (ADRs) traded on U.S. exchanges and is also available via foreign operations embedded in the multinational income streams for many U.S.-based holdings.

In my view, significant opportunities exist to pick up selected and what we believe to be temporarily depressed bargains. The shares of German parcel carrier Deutsche Post (DPSGY) and U.S. based staffing services concern ManpowerGroup (MAN) are two inexpensive examples.

Deutsche Post is a centuries-old company that delivers to customers in 220+ countries and has experienced substantial package volume growth since the onset of the pandemic nearly three years ago. Express Business to Consumer (B2C) shipments per day are up 51%, while parcel volume in Germany, where DPSGY earns a quarter of its revenue, is up 19% as of the Q3 report. Of course, air and ocean freight volumes had dropped amid a slowing macroeconomic environment in Europe in the face of geopolitical conflict, even though the company’s DHL Express service has held up well. To offset rising costs, DPSGY has been able to pass on price increases and pull cost-management levers. Shares trade for an inexpensive 12 times 2023 estimated earnings, which we think will mark a trough for the bottom line, and boast a nice 3.1% net dividend yield.

Also, we note that over two-thirds of revenue generated by ManpowerGroup comes from Europe. Similar to that of Deutsche Post, shares were hit hard over the first nine months of 2022 but have bounced back nicely since the end of Q3. The stock still trades well below its 2021 peak, with an attractive forward P/E ratio of 12, a double-digit free-cash-flow yield and a dividend yield of 3.1%. Manpower has deftly navigated previous expansions and contractions across the Continent, rewarding shareholders with sizable profits and generous dividends through thick and thin.

Special Report: Where to Invest in 2023 – The Prudent Speculator

Stay tuned for additional themes and stocks in the weeks ahead and happy investing!