(07/25/13) Best of the Bargains: Europe-Based Blue Chips

Despite current economic weakness in the region, select European blue chips—which we consider the best of the bargains—are solid buys, suggests Benjamin Shepherd of Global Investment Strategist.

Italy-based Luxottica (LUX) is the perfect example of a European company increasingly less reliant on its home markets. The largest eyewear manufacturer and retailer in the world, Luxottica, is the parent company of LensCrafters, Pearle Vision and Sunglass Hut, with more than 7,000 retail locations around the world.

It also owns the iconic Oakley and Ray-Ban brands of eyewear, as well as offering a wide array of designer-licensed frames, such as Chanel, Coach, Burberry, Prada, and the recently announced Armani line.

A model of vertical integration, Luxottica enjoys a massive geographic footprint. Few competitors can match the company's low costs and high volumes, leaving it plenty of headroom for future growth.

Management is expanding in cities such as Delhi, Shanghai, and Jakarta, where there's a dearth of eyewear. As emerging market consumer incomes continue to rise, the company's focus on those regions will continue to drive revenue and earnings gains.

Spain-based Grifols (GRFS) offers a wide array of health care products. Its diagnostics division provides equipment and chemicals used in blood typing, test systems used to measure and monitor blood clotting times, analyzers to measure immune system activity, and products and services for blood banks.

Grifols' exceptional research and development has spawned a host of new treatments, the sophistication of which set the company apart from its peers.

Among the company's most in-demand products is Gamunex, an intravenous immune globulin (IVIG) used to treat progressive nerve damage, that results in pain and weakness in a patient's extremities. Gamunex is the only treatment of its kind, and enjoys looser regulatory strictures in the US under orphan drug status.

Grifols has historically been a low beta stock, with revenues and earnings typically growing in the mid-single digits. It generates over 90 percent of its sales outside its recession-hit home market.

The company's three-year average revenue growth is running at 42.1 percent, with earnings growth of 6.9 percent. Free cash flow has also jumped from just 3.4 percent of sales in 2011 to 13 percent last year. Buy Grifols under $35.

Unilever NV (UN) is the third-largest packaged food business in the world, with brands that include Lipton tea, Ben & Jerry's ice cream, and Bertolli pasta products. It's also a leader in household and personal care products, such as Dove, Vaseline, and Surf.

The Netherlands-based firm was one of the first consumer product companies to focus on the growth potential of emerging markets. Over the past two decades in those regions, the company has averaged 9%-plus annual sales growth.

Despite dire economic conditions in Europe last year, Unilever enjoyed strong growth throughout all operating segments and geographic regions, with double-digit gains in home care and personal care products.

Emerging markets—particularly Brazil, India, Indonesia and China—are the brightest spot for the company, accounting in 2012 for 55 percent of revenues, up 11.4% from the previous year.

Famous household brands and cost efficiencies, combined with economic growth and rising consumer spending, will put Unilever in a strong position in the years ahead. Because of its terrific growth potential in the emerging markets, we're adding Unilever NV as a buy under $46.