Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: Aaron Barnfather, director of Lazard Asset Management's Lazard European Alpha Fund.
Europe's investment landscape has changed. Investors' views of risk and reward, shaped by ten years of outperformance by small and mid-cap stocks, may need to change too. Not only do large-caps seem to provide better value right now, but many offer a combination of growth and positive restructuring stories that should mean they outperform their smaller peers in today's tougher markets. As well as seeking firms that can generate high and sustainable returns, investors also need to look for other indications of quality. These include the calibre of a company's management, the strength of its market position and, at a time of rising input costs, whether it possesses pricing power. Management quality and change is a common thread to the three stocks below. Each one has undergone a change of CEO in the past 12 months, which we believe should help them outperform the market.
The first, AP Moller-Maersk (Copenhagen:APMM) is a Danish conglomerate. Its range of activities includes container shipping (its Maersk Line division is the world's largest container shipping company), oil and gas production, plastics manufacturing and retailing. It also owns 20% of Danske Bank. While attracted by the quality of its assets and its low valuation, we're also impressed by its change in direction. New CEO Nils Andersen should cement the move from a privately run family business to a firm focused on creating value for all of its shareholders.
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Andersen, formerly CEO of Carlsberg where he delivered strong share-price performance, is focused on simplifying the group's operations and running the shipping unit for profit rather than growth, as was the case before. We also feel the market has overlooked the oil unit: it accounts for half the firm's overall profits and has proven reserves of 1.8 billion barrels, yet the firm still trades like a pure shipping stock.
Siemens (DAX:SIE), the German industrials giant, has huge operational strengths in several fields but has failed to convert these into commensurate profits. This is very much a restructuring story. The group has offloaded several businesses and there is a new CEO at the helm. Peter Loescher's background includes time at General Electric, a firm that has consistently generated high and sustainable levels of financial productivity that Loescher will no doubt aim to reproduce at Siemens. The group is focusing on growing margins and profitability and aims to create a leaner organisation through substantial job cuts. It is also seeking to simplify its overall structure to speed up decision-making.
Finally, there's Greek gambling company OPAP (Athens:OPAP). OPAP has a monopoly within the Greek gambling industry, earning revenues from sports betting, among other things. New CEO Christos Hadjiemmanuil previously headed the body responsible for managing Greece's Olympics infrastructure. He is striving to improve OPAP's efficiency, turning it from a state-run organisation into a normal company and cutting costs in the process. We believe the stock offers an attractive mix of growth and value, benefiting from the group's dominant market position, robust growth rate and high dividend yield. Gambling is a growing industry in Greece and there may be opportunities for OPAP to export its skills to other markets in southern Europe.
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