NEW YORK (TheStreet) -- All the negative headlines coming out of Europe are just fine with Tucker Scott, portfolio manager for the Templeton Foreign Fund (TEMFX) - Get Templeton Foreign A Report. The bad news only makes European blue chips cheaper for him to buy.
The $5.7 billion fund, which garners three stars from
, is up 1.3% over the past year, better than half of its foreign large-cap rivals. Over the past five years, the fund has returned an average of 3.1% annually, better than 83% of its peers.
Welcome to TheStreet.com's Fund Manager Five Spot, where America's top mutual fund managers give their best stock picks and views on the market in a five-question format.
Considering all that's happening there, why is Europe a good place to invest in now?
It's a combination of having some of the world's best companies at the world's lowest valuations. You can buy into the blue chips of Europe, perhaps domiciled in Germany or France, that have great global franchises much like the Americans, but you can buy them about 20% cheaper.
Vodaphone is being penalized because they have had some shrinkage in their core voice business. We like Vodaphone because the valuation certainly makes sense and it has a free cash flow yield of over 10%. And we don't think that the company is in any kind of decline, because you have a data growth business within Vodaphone which is about 20% of sales today that is growing organically at 20%. And as the mix shifts more towards data, we think Vodaphone's growth will be rewarded in the market with a better multiple.
Another telecom player in Europe that you are especially high on is France Telecom (FTE) . Why do you like this one?
First and foremost, what we like about France Telecom is the valuation. We have almost a 20% free cash flow yield. And when you think about that in the context of a world where 10-year government bonds are at roughly 2.5%, well, that just doesn't make sense to us. The amount of decline being priced in is far in excess of what we are likely to see there.
Sanofi-Aventis trades at seven times earnings. We have gone through many of the drugs that are coming off patent and we have also looked at what is coming out of their pipeline, and in the end we believe there will be a slight hit to earnings in 2012 and 2013. But on a normalized basis this stock is far too cheap relative to the long-term growth prospects it has.
Outside of Europe, one of your largest holdings is in Taiwan Semiconductor (TSM) - Get Taiwan Semiconductor Manufacturing Co. Ltd. Report. Why do you want to own a chip stock, considering all the downgrades in the sector?
Taiwan Semi is the leading foundry in the world. They pioneered this business model. Their position is so strong that they still are profitable, even when the rest of the industry is suffering losses. And today we can buy this stock at 11 times earnings and it pays out a 6% dividend yield. Plus it has no debt, so we think the risk reward is excellent.
Reported by Gregg Greenberg in New York
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