Three solid European stocks

Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: Rory Hammerson, investment director of the SWIP Pan European Smaller Companies Fund.

With growing uncertainty in Europe over earnings forecasts and ongoing market volatility, good stock selection is vital.

My first pick is Acino (SIX:ACIN), a well-managed Swiss pharmaceuticals group working at the less-glamorous but no less essential end of medical treatment. Acino has two divisions: Cimex, which produces pharmaceuticals with delayed active-substance release; and Novosis, a maker of transdermal plasters and subcutaneous implants. Acino's core brand is Fentanyl, an innovative slow-release morphine patch for treating chronic pain. The company also has a strong business pipeline in many other areas. A German high court, for instance, recently ruled that its blood-thinning drug, clopidogrel a generic version of Plavix, made by French rival Sanofi-Aventis can now be marketed in Germany. Sales of Plavix topped€e2.4bn last year.

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The firm achieved a 32% rise in turnover for the first half of 2008, with growth in both its divisions. Group profits rose to SFr20.7m, up from SFr9.8m in the first half of 2007. Acino is also forecasting a rise in turnover of 30% and a significant increase in profitability for 2008 as a whole. We believe the current share price does not reflect Acino's full potential.

Another attractive stock is Barcelona-based Grifols (MCE:GRF), which manufactures blood-plasma derivatives. Grifols is fourth in terms of production worldwide, with a 7% share of the market. Its main advantages over its peers are its superior technology and efficient production techniques, which allow the firm to grow volumes faster than its competitors. The company has also been investing heavily in extra US-based collection centres, which will enable it to continue to grow volumes over the next five years. We believe that investors will increasingly attach a price premium to the quality and stability of the firm's earnings. On a three-year horizon, we expect sales to rise by 16% and net income to rise by more than 40% as Grifols continues to outpace its peers.

My third stock is Kone (HEL:KNE.B). There are two main drivers that will push revenue growth over the next five years. The first is new European safety regulations, which mean the market for replacing or updating antiquated lifts is thriving. Secondly, Kone has good exposure to the profitable American, Chinese and south Asian markets. It is also winning market share in its original equipment business low-inertia systems facilitating high-speed lifts due to technological excellence and cost-efficient production. In the longer term, its revenues are also supported by steady income from servicing and maintaining its growing number of installed units around the world.

With strong management in place, we believe Kone will be able to achieve double-digit revenue growth over the next five years. Some impressive operational leverage in its margins should also boost profitability. The company's financial health is solid and we believe it is extremely under-valued. Falling housing markets and the current construction downturn may hit the firm in the short term, but this is a solid long-term holding.