Crossing the Pond for Profits
Don’t let the rising rates and talk of socialist welfare states fool you – Europe is where it’s at, Cramer said.
Actually, the low rates in the U.S. are a sign that there’s no faith in earnings. Higher rates are a sign there’s a diminished earnings risk. For that reason, Cramer said the earnings of European companies must be pretty strong.
Many European countries have lower corporate taxes than the U.S. does. Plus, they have captive markets, namely those formerly communist countries that now can’t get enough goods and services.
So this week’s series will focus on companies from the Continent that Cramer thinks are worth owning. Take Philips, for instance. Here’s an outfit that could be worth 20% more than its current price.
The four major consolidated businesses – Medical Systems, Domestic Appliances and Personal Care, Consumer Electronics, and Lighting – are worth $39 a share, Cramer said. The four major unconsolidated investments are worth around $10 a share. The net cash adds $3. That’s an implied share price of about $53, according to Cramer’s calculations, which is roughly 20% over the current price of $43.75.
Philips could raise as much as $6.5 billion by selling half its stake in Taiwan Semiconductor and Philips LCD, Cramer said, quoting from a Financial Times article in today’s paper. All that money could go toward special dividends and increased buybacks.
There are a couple of other great things going for Philips as well. Its Medical Systems division is number two in ultra sound and number one in patient monitoring, and Cramer expects them to gain share in emerging markets.
Bottom Line: Philips has at least 20% upside, it’s a great European manufacturer of high-tech gear, and any true international pimp/investor should love to own PHG.
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