Free Annual Reports
Options For Investing In Italy
With Ireland receiving a helping hand from ECB, Europe is once again the focus of the markets. The potential for sovereign debt defaults, riots and austerity measures plaguing the eurozone have many investors steering clear of the continent altogether. Funds like the iShares S&P Europe 350 Index (NYSE:IEV) have retreated from their highs. The contagion fears that affect the PIIGS nations are a real general concern for portfolios. These worries do have the capability to unhinge the already fragile eurozone recovery. However, fortune favors the bold. Even in the PIIGS' investors can find value.
IN PICTURES: Top 10 Forex Trading Rules
An Italian New-Year Resolution
Italian stocks are on track to post their worst annual showing in over 15 years. The nation's benchmark stock index has lost around 16% since the start of 2010. Only Spain has managed to turn in poorer results. Italy's meager performance is certainly justified, as the country does suffer from many structural issues. Italy's public debt is one of the highest in the world. Currently, this debt sits at nearly 120% of GDP. The country's also undergoing an unstable political situation, with the government facing a vote of confidence in parliament in mid December; this could lead to early elections in 2011. Combining this with the fact that many of its companies are in mature industries showing below average growth rates and you have a recipe for underperformance, these circumstances have caused many investors looking elsewhere for growth. However, like Japan, there is still value left in the Italian stock market.
Italy's economy is expected to grow 1% in 2010 and 2011, with 1.2% GDP growth in 2012. Italian equities trade at a nearly 10% discount to the broad European market, on a 12-month forward earnings metric. Italy also features a high internal savings rate and most of its debt is locally owned. This gives the Italian government more flexibility in dealing with that problem as opposed to Greece or Ireland. This budget deficit is below the remaining PIIGS, at just 5% of GDP. Spain sits at 9.3% and Portugal at 7.3%. Finally, Italy has another ace up its sleeve: exports. As both a major trade partner with fiscally strong Germany and many emerging markets, Italy should make up lost ground with a weaker euro boosting these exports.
Wading Through the Muck
For those wanting to add exposure one of the more promising of the PIIGS countries, Italy does fit the bill. However, just buying the iShares MSCI Italy Index (NYSE:EWI) might not be the best way to play the nation. With nearly 36% of the exchange-traded fund in financials, the fund is severally exposed to any of the problems facing the country. Like Greece, which is home to Coca-Cola Hellenic Bottling (NYSE:CCH), Italy also offers some domestic firms with a global reach.
With emerging markets craving new luxury goods, Luxottica (NYSE:LUX) is the owner of several high-end eyewear brands such as Ray-Ban, the company has been expanding aggressively into East Asia. Following a similar strategy as handbag maker Coach (NYSE:COH), the company operates over 1200 premium retail outlets in Asia alone. The firm is posed to make gains as the emerging market consumer gets richer. Equally, high-end furniture maker Natuzzi SpA (NYSE:NTZ) will benefit.
With the world requiring more energy, major integrated oil company, Eni (NYSE:E) should be given portfolio consideration. The firm has been making headway into new oil reserves and pays a healthy 4.3% dividend.
Even with the economy in a sour state, the Italian people will still make phone calls. Top telecom company, Telecom Italia SpA (NYSE:TI), is currently trading at a 30% discount to its book value and yields nearly 3.5%. The firm makes a nice defensive play on the Italian market and economy. (In theory, a low P/B ratio means you have a cushion against poor performance. In practice, it is much less certain. Check out Book Value: Theory Vs. Reality.)
Bottom Line
The PIIGS nations embody the worst of the region. However, there may be some value left in Italy. While the country's outlook is plodding at best, some of its multinationals are trading for cheap multiples. Investors wanting to take a small bet on nation's recover can do so with the preceding stocks.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: Top 10 Forex Trading Rules
An Italian New-Year Resolution
Italian stocks are on track to post their worst annual showing in over 15 years. The nation's benchmark stock index has lost around 16% since the start of 2010. Only Spain has managed to turn in poorer results. Italy's meager performance is certainly justified, as the country does suffer from many structural issues. Italy's public debt is one of the highest in the world. Currently, this debt sits at nearly 120% of GDP. The country's also undergoing an unstable political situation, with the government facing a vote of confidence in parliament in mid December; this could lead to early elections in 2011. Combining this with the fact that many of its companies are in mature industries showing below average growth rates and you have a recipe for underperformance, these circumstances have caused many investors looking elsewhere for growth. However, like Japan, there is still value left in the Italian stock market.
Italy's economy is expected to grow 1% in 2010 and 2011, with 1.2% GDP growth in 2012. Italian equities trade at a nearly 10% discount to the broad European market, on a 12-month forward earnings metric. Italy also features a high internal savings rate and most of its debt is locally owned. This gives the Italian government more flexibility in dealing with that problem as opposed to Greece or Ireland. This budget deficit is below the remaining PIIGS, at just 5% of GDP. Spain sits at 9.3% and Portugal at 7.3%. Finally, Italy has another ace up its sleeve: exports. As both a major trade partner with fiscally strong Germany and many emerging markets, Italy should make up lost ground with a weaker euro boosting these exports.
Wading Through the Muck
For those wanting to add exposure one of the more promising of the PIIGS countries, Italy does fit the bill. However, just buying the iShares MSCI Italy Index (NYSE:EWI) might not be the best way to play the nation. With nearly 36% of the exchange-traded fund in financials, the fund is severally exposed to any of the problems facing the country. Like Greece, which is home to Coca-Cola Hellenic Bottling (NYSE:CCH), Italy also offers some domestic firms with a global reach.
With the world requiring more energy, major integrated oil company, Eni (NYSE:E) should be given portfolio consideration. The firm has been making headway into new oil reserves and pays a healthy 4.3% dividend.
Even with the economy in a sour state, the Italian people will still make phone calls. Top telecom company, Telecom Italia SpA (NYSE:TI), is currently trading at a 30% discount to its book value and yields nearly 3.5%. The firm makes a nice defensive play on the Italian market and economy. (In theory, a low P/B ratio means you have a cushion against poor performance. In practice, it is much less certain. Check out Book Value: Theory Vs. Reality.)
Bottom Line
The PIIGS nations embody the worst of the region. However, there may be some value left in Italy. While the country's outlook is plodding at best, some of its multinationals are trading for cheap multiples. Investors wanting to take a small bet on nation's recover can do so with the preceding stocks.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Aaron Levitt
Aaron Levitt is a SABEW investment journalist and analyst living in State College, Pennsylvania. His work appears in several high profile publications in both print and on the web. Aaron is a graduate of The Pennsylvania State University where he studied Economics and International Business and he is an advocate for long-term investing with a global framework. You can follow his picks and pans at @AaronLevitt
Free Annual Reports
