Nicholas Kaiser // Portfolio Manager // Sextant International (SSIFX)

Comments & Outlook

The European sovereign-debt crisis will ultimately serve to strengthen the region. Some of the structural changes that have been imposed thus far are leading to improvements in labor laws, tax collection schemes and retirement plans, all of which are making countries such as Greece, Spain, Italy and Portugal more competitive. These countries are facing tough austerity measures, but they will endure these policies for the better.

For example, India’s current success originated in a similar financial crisis 20 years ago that required the International Monetary Fund to implement major structural changes to its economy. India has grown by 5 percent to 6 percent annually ever since.

And Ireland has already made tremendous strides since its housing bust during the Great Recession. The country introduced tough austerity measures and its people got back to work. They might not be earning as much as they were when the Irish economy was driven by the financial sector, but they’re helping restore the country to solvency.

Recommended Strategies

We look for distressed situations that have the possibility of a turnaround. Lately, that means larger dividend-paying companies domiciled in troubled European countries that have solid earnings power outside the eurozone. Portugal Telecom (NYSE: PT) boasts numerous assets in Brazil and has posted solid numbers, though it’s still a risky play.

What to Buy Now

Netherlands-based ASML Holdings (NSDQ: ASML) makes tools used in the fabrication of semiconductors and is doing quite well despite the problems in Europe.

Large pharmaceutical companies such as Switzerland’s Novartis (NYSE: NVS) and the UK’s GlaxoSmithKline (NYSE: GSK) are stable businesses that pay attractive dividends.

For investors with a greater appetite for risk, I’d suggest Ryanair Holdings (NSDQ: RYAAY), whose earnings should get a boost from its new policy of grounding some of its fleet during seasonally weak periods. And Orient-Express Hotels (NYSE: OEH) has a portfolio of high-end properties around the world, including a number of hotels in Europe. Its outlook has improved due to rising occupancy rates.

David Ruff // Portfolio Manager // Forward International Dividend (FFINX)

Comments & Outlook

Emerging markets’ export-driven economies still have a great deal of sensitivity to what transpires in Europe. However, global economic weakness has removed much of the inflationary pressure from emerging markets. So they have been able to stop tightening their monetary policy and start easing instead.

Although China has taken some steps toward monetary easing, that doesn’t mean their economy won’t continue to slow.

Recommended Strategies

Rather than pursue a conventional dividend strategy, we use the dividend as a signal to identify beaten-down companies that have the ability to fix their business while maintaining their dividend.

We target companies whose dividend payout ratios are in the 30 percent to 60 percent range. That shows the company is dedicated to paying a dividend, but still able to finance growth internally without cutting or suspending its dividend.

We then make sure the company has the financial strength necessary to produce a turnaround.

What to Buy Now

Brasil Foods (NYSE: BRFS) is growing in the low double digits, which is quite a premium relative to the other major international food companies. If Brasil Foods can establish a strong international brand, they’ll have the ability to charge premium prices, which will reduce earnings volatility.

Brasil Foods has a sustainable competitive advantage resulting from its tremendous production scale and unparalleled distribution network.

Danieli (Italy: DANR) specializes in producing electric arc furnaces, a unique steelmaking technology that offers far greater operational flexibility than traditional blast furnaces. Blast furnaces are major investments that cost upwards of $100 million, and production can take months to start or shut down. By contrast, electric arc furnaces are a fraction of that cost, and production can be started or shut down relatively quickly.

The technology will reduce the steel industry’s cyclicality by enabling steelmakers to respond rapidly to changes in market conditions.