Deutsche Bank's Top 7 European Stock Picks for 2012

(Adds Standard & Poor's possible downgrade of Germany and France.)

BOSTON ( TheStreet) -- Deutsche Bank's ( DB) securities unit says Europe will likely fall into a recession soon and shares on the Continent will lag behind those in the U.S.

Still, Germany's largest bank cites a range of European stocks that do business all over the world, helping them weather the turmoil in fine shape. They include a trendy watch maker, a firm that makes ball bearings, and one of the world's largest oil companies.

Standard & Poor's said it may cut Germany's and France's AAA credit ratings as the agency put 15 euro nations on review for a downgrade. The eurozone's six AAA-rated countries are among those to be placed on a negative outlook. Their credit ratings may be lowered depending on the result of a European Union summit Friday, Standard & Poor's said.

Deutsche Bank's analysts' thesis is that even if the eurozone economy goes to hell until it gets its sovereign debt in order, the firms it picked aren't going away because of their solid fundamentals, niche markets, brand strength and, most of all, broad international exposure.

"Our preference overall is for the right kind of globally exposed stocks where the enterprise value and free cash flow has fallen to levels that look attractive," Deutsche Bank said in a report. "Keeping an eye on cash flow is obviously advisable in this environment."

And it is obviously a tough year for European stocks, with the benchmark Stoxx Europe 600 Index down 12%. The S&P 500 Index of the largest U.S. stocks is about break even on the year.

Here are seven of Deutsche Bank's top European stock picks that trade on U.S. exchanges as American Depositary Receipts (ADRs):

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SAP AG ( SAP) of Germany dominates the world market for enterprise resource planning software, although it faces increasing competition, which could slow growth. The company's shares have a three-year average annual return of 22% and a market value of $70 billion.

But the $70 billion company is not sitting still. On Monday, SAP said it plans to acquire SuccessFactors, a U.S. company that provides software that helps businesses manage employees and carry out performance reviews, for $3.4 billion.


Royal Dutch Shell ( RDS.A), with a market value of $222 billion, is one of the world's largest integrated oil companies, with exploration, production and refining operations worldwide. Its challenge is competing with the handful of other "super majors" for the remaining oil resources worldwide.

Royal Dutch Shell's shares have a three-year average annual return of 16% and they carry a 4.83% projected dividend yield.

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SKF ( SKFRY) is a major manufacturer of rollers and ball bearings, as well as industrial seals and roller-bearing steel. It supplies its products to several major industries, ranging from auto makers to industrial manufacturers.

The Swedish firm has a 3.18% projected dividend yield and its shares have a three-year average annual return of 44%.


William Demant Holdings ( WILYY) is a new ADR. It is a Denmark-based company with a market value of $4.6 billion, engaged in the development, manufacture and sale of sophisticated electronics products and equipment to aid in communication. They include hearing aids, medical diagnostic instruments, and personal communication systems.

William Demant's shares are trading at $16.01.

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Telenor ASA ( TELNY), with a $27 billion market value, is the leading telecommunications operator in Norway, with significant exposure to the rest of Scandinavia.

Telenor's stock has a three-year average annual return of 48% and carries a 4.29% yield.


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AMEC ( AMCBF.PK) is a 162-year-old U.K.-based construction, engineering and consultancy firm, that specializes in the energy, mining and environmental sectors.

AMEC's shares have a three-year average annual return of 32%, giving it a market value of $3.2 billion.

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Swatch Group ( SWGAY), a Swiss watchmaker with a market value of $589 million, is a seller of fashion watches, jewelry, and watch and electronic components.

In the year since it started trading as an ADR, Swatch's shares are down 8.4% to $19.39.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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