9 Stocks to Buy for a European Recovery

BOSTON (TheStreet) -- With the prospect of a resolution to the long-running European sovereign debt crisis in the offing, and the continent's market starting to show signs of life, investors could do well buying stocks of some of its healthiest companies.

As for the crisis, there were two big positives on Wednesday, as a German court said the country can ratify the eurozone's new rescue fund, which is seen as a key to a recovery plan, while separately, Spain said it might not need more aid.

That should have investors thinking about the opportunity of a quick recovery for some stocks, even though the region's economies will likely to continue to struggle.

For gun-shy retail investors who missed out on the post-recession market rally, S&P Capital IQ said in a Sept. 12 research note that "lingering European concerns could provide U.S. investors with a second chance for long-term upside as Europe recovers from crisis pricing."

With that in mind, S&P Capital IQ cited three actively managed European-focused mutual funds as quality performers worth considering, including the $1.6 billion Causeway International Value Fund ( CIVVX), the $454 million Federated International Leaders Fund ( FGFAX) and the $150 million Putnam European Equity Fund ( PEUGX).

Causeway International Value Fund, which is top-rated by S&P at five stars, is 72% invested in European developed markets and 26% in Asia developed markets.

It has a return of 17.5% this year, including 14.7% in the past three months. Its 2012 gain puts it in the top 1% of funds in its category, per Morningstar.

The four-star Federated International Leaders Fund has a return of 19.2% this year, including 15% in the past three months. It also has a top 1% performance in 2012 and has outperformed its peer average based on the one-, three-, five- and 10-year periods based on total return.

The Federated fund is 74% invested in European developed markets, 9% in Asia developed, 6% in the U.S., 2% in Latin America, 2% in Canada and 7% elsewhere.

The four star Putnam European Equity Fund has a return of 17.2% this year, including 15.7% in the past three months. Its year-to-date performance puts it in the top 22% of funds in its category.

The fund is 96% invested in Europe, mostly developed markets.

I reviewed those three funds' top stock holdings and summarized them below.

Big multinationals are the top picks of these funds, and their diversity should protect them from any economic shocks at home while offering strong long-term potential.

Here are nine stocks that are the top holdings of three highly-rated, Europe-focused mutual funds, arranged in inverse order of the number of "buy" ratings they have from analysts:

9. Vodafone Group ( VOD)

Company profile: Vodafone, with a market value of $139 billion, is the second-largest wireless phone company in the world, serving 22 countries.

Dividend Yield: 5.16%

Investor takeaway: Its shares are up 4.8% this year and have a three-year, average annual return of 13%. Analysts give its shares one "buy" rating, one "buy/hold," five "holds," and one "weak hold," according to a survey of analysts by S&P. Those same analysts estimate it will earn $2.50 per share this year and $2.61 next, which is 4% growth.

8. Reed Elsevier ( REN)

Company profile: Reed Elsevier, with a market value of $7 billion, is a diversified publisher and information-services company.

Dividend Yield: 3.7%

Investor takeaway: Its shares are up 19% this year and have a three-year, average annual return of 8%. Analysts give its shares one "buy" rating, and one "hold," according to a survey of analysts by S&P.

7. Sanofi ( SNY)

Company profile: Sanofi, with a market value of $115 billion, is one of the world's biggest pharmaceuticals firms. About 30% of total revenue comes from the U.S. and 30% from Europe.

Dividend Yield: 3.9%

Investor takeaway: Its shares are up 23% this year and have a three-year, average annual return of 11%. Analysts give its shares three "buy" ratings, one "buy/hold," and three "holds," according to a survey of analysts by S&P. Those same analysts' consensus earnings estimate is for $3.75 per share this year, and growth of 2% to $3.82 per share next year.

6. British American Tobacco ( BTI)

Company profile: British American Tobacco, with a market value of $61 billion, is the third-largest tobacco products seller in the world, with operations in 180 countries.

Dividend Yield: 4.1%

Investor takeaway: Its shares are up 12% this year and have a three-year, average annual return of 20%. Analysts give its shares three "buy" ratings and five "holds," according to a survey of analysts by Morningstar.

5. Diageo ( DEO)

Company profile: Diageo, with a market value of $74 billion, is the world's leading producer of branded premium spirits and also produces and markets beer and wine.

Dividend Yield: 2.54%

Investor takeaway: Its shares are up 27% this year and have a three-year, average annual return of 23%. Analysts give its shares four "buy" ratings, two "buy/holds," and one "hold," according to a survey of analysts by S&P. Analysts' consensus earnings estimate is for 6.49 per share this year, and rising by 11% to $7.22 next year.

4. HSBC Holdings ( HBC)

Company profile: HSBC, with a market value of $102 billion, is among the largest banks in the world, with around 7,000 offices in 85 countries. Based in London, about 46% of its assets are in Europe.

Dividend Yield: 4.62%

Investor takeaway: Its shares are up 23% this year but have a three-year, average annual loss of 2%. Analysts give its shares four "buy" ratings, two "outperforms," and four "holds," according to a survey of analysts by Morningstar.

3. Imperial Tobacco Group ( IMT)

Company profile: Imperial Tobacco, with a market value of $23 billion, is the world's fourth-biggest publicly traded international tobacco company with total annual volume of more than 300 billion cigarettes sold in more than 160 countries.

Dividend Yield: 4.35%

Investor takeaway: Its shares are up 0.6% this year and have a three-year, average annual return of 11%. Analysts give its shares five "buy" ratings, one "outperform," one "hold," and one "sell," according to a survey of analysts by Morningstar.

2. Royal Dutch Shell ( RDSA)

Company profile: Royal Dutch Shell, with a market value of $228 billion, is one of the top energy companies in the world, with exploration, production and refining operations.

Dividend Yield: 4.38%

Investor takeaway: Its shares are up 1.3% this year and have a three-year, average annual return of 12%. Analysts give its shares five "buy" ratings, two "buy/holds," one "hold," and one "sell," according to a survey of analysts by Morningstar.

1. Novartis ( NVS)

Company profile: Novartis, with a market value of $135 billion, is a global health-care company based in Basel, Switzerland. It is a maker of pharmaceuticals, vaccines and diagnostics, generics, and consumer- and animal-health products..

Dividend Yield: 3.15%

Investor takeaway: Its shares are up 6.5% this year and have a three-year, average annual return of 11%. Analysts give its shares six "buy" ratings, one "buy/hold," and one "moderate sell," according to a survey of analysts by TheStreet.

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

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