Navigating the Clean and Bloody Streets of Europe

True or not, the tale of Rothschild buying when everyone else was panicking is an excellent illustration of contrarian investing: the notion that the best bargains are to be had when nobody else wants them.  As a contrarian investor myself, the Eurozone turmoil and accompanying declines in European stock markets have piqued my interest.

Clean and Bloody Europe

Europe, with its high energy prices and early acceptance of the science of climate change has for many years been growing industries with the technology and skills to confront peak oil and climate change.  These stocks have been falling along with most other European stocks as a break-up of the Euro zone has begun to look increasingly likely.  If the Euro zone were to fall apart, it would likely be disastrous for all European economies.  Many companies in debtor nations leaving the Euro would be unable to repay  their Euro-denominated debt and have to declare bankruptcy, while companies in stronger economies such as Germany would find it increasingly difficult to compete because of a rapidly appreciating currency.

The coordinated action of six central banks led by the U.S. Federal Reserve on November 30th gave European leaders some breathing room to work out a way to deal with the spiraling cost of financing peripheral economies' debt.  But they must come up with something much more decisive than previous deals if a crisis is to be averted.  If a deal can be reached, now could easily turn out to be one of the best buying opportunities for European stocks at extremely attractive valuations for years.  A deal would also likely lead to a short term rally in the U.S. as well.  If not, it may simply be a good way to lose a lot of money.  

My Strategy

Over the last few months, I have bought a handful of European stocks at what appear to be very attractive dividend yields, but I am also maintaining against major stock indexes which should cover my losses if the crisis worsens.  I'd be a lot more cautious about buying European stocks at this point without a hedge.  The stocks I've bought recently are:

1. Environmental services firm Veolia (VE), which I wrote about in Trash Stocks Trashed.  At $12.69, VE yields over 12 percent on trailing dividends, although I expect the dividend in 2012 to be significantly lower than the $1.47 paid this year.
2. Denmark-based global insulation manufacturer Rockwool (ROCK-B.CO/RKWBF.PK).  At the recent price of $88.22, Rockwool has a two percent yield, and Rockwool's global operations should shelter the company somewhat from the fallout in Europe, especially since the global insulation market seems to be rebounding.
3. German inverter manufacturer SMA Solar (S92.DE / SMTGF.PK), which at the recent price of $56.70 yields three percent.  I most recently wrote about SMA in A Value BOS Play on Solar, although I inadvertently doubled the dividend yield in that article.
4. Dutch bicycle and e-bike manufacturer Accell (ACCEL.AS / ACGPF.PK) is yielding about seven percent at $17.47. I recommended buying Accell last week.

I normally follow North American stocks, and this eclectic group are simply European stocks which have caught my interest over the last few years and currently seem fairly cheap.  Since the Euro crisis is making stocks fall across the board, I polled my panel of green money mangers to see what they thought of the current opportunities across the Atlantic, and to see if they had any specific picks of their own.

Robert Wilder

Dr. Robert Wilder is the CEO of Wildershares, and co-founded and manages the WilderHill Clean Energy Index (ECO) which underlies the largest clean energy ETF, PBW.  He also co-manages two other Wilderhill indexes, WHPRO and NEX.  As an indexer, he was not willing to pick stocks, but he did have some thoughts to share on the situation in Europe:

On Solar:

Overcapacity from China taking poly[silicon] costs near $25/kg and c-Si solar modules under $1 on top of low prices, has been very painful for all European listed (and American) competitors.  

That fact depressed many solar stocks on European markets in 2011, and some consolidation is expected in 2012. A few higher-cost firms have already failed.