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Europe’s debt woes grow investment opportunities

Student workers thwere protesting against labor reform EU IMF policies fight economic crisis clash with police near Chigi Palace government's

Student and workers that were protesting against labor reform and EU and IMF policies to fight the economic crisis, clash with police near Chigi Palace government's headquarters, in Rome, Thursday, June 14, 2012, as Italian premier Mario Monti met France's new austerity-averse president, Francois Hollande, who traveled to Rome to discuss Europe's widening debt crisis and confidence-building measures. The meeting was held against the backdrop of skyrocketing borrowing rates over two days that wiped out gains made since Monti's technocratic government passed austerity measures in December. Italy, stuck in a recession with an enormous debt pile, has been penalized for Spain's belated admission over the weekend that it would need a bailout for its troubled banks. (AP Photo/Roberto Monaldo, Lapresse) ITALY OUT

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roeder report

David Roeder reports on real estate at 6:22 PM. Every Thursday on News- radio 780 and 105.9 FM WBBM. The reports are repeated at 10:22 p.m. Thursday and 7:22 a.m. Sunday

Updated: June 17, 2012 2:33AM

There are two kinds of people who drive the world’s markets every day: traders and investors.

For traders, the European crisis has been a fiscal pain, although no one would claim they are suffering more than some people now living the consequences of government austerity. Traders have seen their portfolios lose value because of the crumbling euro, and the lack of a central authority in Europe to deal with fiscal issues means that one day a solution is within reach, and the next day the problems seem hopeless. Greece votes Sunday on a new government and its future with the euro, and the outcome will give stocks their direction for the week.

For investors, opportunity is emerging in the eurozone. The crisis has driven down the value of excellent companies, and it’s time to buy in, said David Herro, portfolio manager of the Oakmark International Fund (OAKIX) and a partner at Chicago-based Harris Associates. At last report March 31, Oakmark International had 69 percent of its holdings based in Europe.

Herro has been following companies such as Mercedes-Benz maker Daimler (DDAIF), which has lost about a third of its value since March. “It has a strong balance sheet and a healthy product pipeline,” he said. “Believe me, I liked it in March and it’s not worth any less to me now.”

He also said he’s been shopping for beaten-down shares of French bank BNP Paribas (BNP.PA) and lighting and medical products producer Koninklijke Philips Electronics (PHG), whose LED bulbs are becoming ubiquitous. (Full disclosure: Herro is an investor in Wrapports LLC, which owns the Sun-Times.)

The dangers in the European market are the supposed “safety” zones such as consumer staples and utilities, Herro said. Nervous traders already have lifted those share prices beyond reasonable levels, he said.

“Investors are herd-like. They often behave without thinking,” said Herro, who evaluates stocks for three-, five- and 10-year time horizons.

Keep that in mind in case the Greek vote scares Wall Street into a selling stampede.

DIVIDEND DARLINGS: Morgan Stanley highlighted five dividend-paying stocks in a note to clients, calling them safe, sound and especially desirable given low interest rates. Note that last week, the U.S. government paid the lowest rate on record to buyers of the 30-year bond, just 2.72 percent.

Morgan Stanley’s dividend picks, all with yields close to or higher than Treasuries, are:

Freeport-McMoran Copper & Gold (FCX), copper and gold producer that has nearly tripled dividends since 2010, yet still is paying out a low 31 percent of earnings.

Chevron (CVX), oil and gas producer with a similarly low payout ratio and a record of paying dividends since 1921.

Staples (SPLS), office supply retailer with healthy earnings and dividend growth despite a tough market.

MetLife (MET), life insurer that is undervalued compared with Allstate (ALL) or Progressive (PGR).

St. Jude Medical (STJ), medical device maker that has steadily increased earnings.

CONTEXT, PLEASE: Morningstar analyst Eric Kobayashi-Solomon begs to differ with my characterization of his view about Facebook (FB) last week. In a written piece I quoted from, he said it isn’t a good investment “at the present time.” Kobayashi-Solomon advised that his conclusion applied to options on Facebook, not the stock itself. He said he wasn’t disagreeing with fellow Morningstar analyst Rick Summer, who wrote that Facebook shares are “poised for massive growth.” Glad to report that there is peace in the Morningstar family. Now we’ll watch for that growth.

FACEBOOK FACEPLANT: While shares of the social media company continue to flounder after last month’s IPO, consider the comments of Eric Jackson, founder of Ironfire Capital on CNBC:

“In five to eight years, they [Facebook] are going to disappear in the way that Yahoo [YHOO] has disappeared. Yahoo is still making money, it’s still profitable, still has 13,000 people working for it, but it’s 10 percent of the value that it was at the height of 2000.”

He said the Web is entering a new phase, which will emphasize making money from mobile platforms, and that Facebook will be an older-phase company that can’t adapt.

CLOSING QUOTE: “The Energy Department is out with a new report on America’s booming oil production, and it’s something to behold. Thanks to new drilling in North Dakota, Texas and the Gulf of Mexico, the United States is now pumping more than 6 million barrels a day of crude, up roughly a tenth since the middle of last year and the highest volume the country has managed since 1968. Not since Bill Clinton was fending off impeachment charges have we been able to extract oil at this pace.” — Jordan Weissman, the Atlantic

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