While the world was focused on the United Kingdom and its “Brexit,” Rome was quietly burning. Italian stocks — as represented by the exchange-traded fund iShares MSCI Italy Index (ETF) (NYSEARCA:EWI) — have basically imploded over the year. Year-to-date, EWI is down a whopping 19%.
The reasons for the huge drop in Italian stocks are one heck of a banking crisis and the fear of a Brexit-style exit from the European Union. Dubbed the “Quitaly,” Italy will soon vote a series of resolutions that, if not passed, will see current Prime Minster Matteo Renzi resigning.
Analysts postulate that with Renzi out of the way, the incoming government will vote to leave the European Union. Adding that to the years of stagnating growth, rampant unemployment and failed pension systems, and it’s easy to see why investors have run away from Italian stocks.
However, for contrarians, stocks in Italy make an interesting choice.
That’s because where a company is domiciled isn’t all about where it makes it money. Sure, Italian banking stocks are off-limits, but the nation is filled with a variety of multinationals that derive plenty of their revenues from overseas.
The truth is, real value hounds could be welcoming of the Quitaly and the opportunities it presents on Italian stocks. Here are three that they should get ready to buy.
Italian Stocks to Buy: Luxottica (LUX)
When it comes to eyewear and vision, there happens to really be one name in town and it also happens to Italian. And that would be Luxottica Group SpA (ADR) (NYSE:LUX).
The heart of LUX includes is portfolio of leading glasses and sunglasses brands, including Ray-Ban, Oakley and Persol. The firm also licenses and manufactures glasses for several high-end brands like Polo, Prada, Coach Inc (NYSE:COH) and 24 others.
The real win for LUX is that it also operates one of the largest retail networks of stores and optometrist shops in the world. The Lens Crafters, Pearle Vison and Sunglass Hut at your local shopping center are all owned by the Italian company, as are all the Target Corporation (NYSE:TGT) Optical locations.
LUX has expanded that model all across the world. As a result, more than 80% of its sales come from outside Europe. Perhaps more importantly, its luxury brands like Ray-Ban are growing like weeds in places like emerging Asia. Luxottica is quickly becoming less reliant on Europe for its revenues.
But the problems in Italy haven’t been kind to Luxottica. Like most Italian stocks, LUX has spent 2016 in free fall, sinking about 30%. However, this is simply a case of misguided attention. LUX is very much a global play, not just an Italian one.
Italian Stocks to Buy: Eni (E)
Eni SpA (ADR) (E) has the unfortunate pleasure of being a member of two hated groups — Italian stocks and oil producers. However, E stock deserves to be on any investor’s watch/buy list.
Eni is one of the largest integrated majors. Think Exxon Mobil Corporation (NYSE:XOM). And like XOM, E stock owns a vast range of energy projects across the up-, mid- and downstream sectors throughout the globe.
The vast bulk of its operations have focused on the Middle East, and some of its legacy fields in Libya are some of the largest in the world. These fields provide Eni with a steady dose of daily production and operating cash flows.
Meanwhile, E stock continues to explore and has become one of the best “finders” of new deposits among the majors. That includes its massive recent finds in Mozambique and its “supergiant” field in Egypt that could be home to a whopping 30 trillion cubic feet of gas. Those sorts of finds are great for the long term.
In the short term, profits have been lacking at Eni due to the downturn in energy prices.
But with energy prices starting to rise, ENI should start seeing its net income kick into high gear. And because of the recent problems with Italian stocks in general, they can buy those profits at a discount. E stock also sports a big 6% dividend.
Italian Stocks to Buy: Ferrari N.V. (RACE)
Perhaps there is nothing more Italian than Ferrari N.V. (NYSE:RACE). But like the other Italian stocks on this list, RACE is more of a global powerhouse than just a play on Italy.
Ferrari’s iconic and luxury automobiles are sold all over the world. The name brand commands a huge amount of pricing power, as its owners are celebrities, global elites and racing enthusiasts. Very few car companies can charge $2 million for a preorder and have it sell out in minutes. With RACE, you’re buying a status symbol, rather than just transportation.
That has translated to into rising sales. During its last earnings release, RACE saw shipments gain across the board in terms of world regions. However, the biggest driver was Asia, as the emerging wealthy continue to buy luxury items at a fevered pace.
China continues to mint more millionaires than any other nation on the planet. That works out in Ferrari’s favor, given its iconic status. For investors, it translates in rising profits and car shipments over the long term. And when you’re selling cars for north of $300,000 a pop, the profits really start to flow.
Meanwhile, RACE shares can be had for just a little above its IPO price.
In the end, when it comes to Italian stocks to buy, RACE could be one of the best ones given its long history as a global symbol of wealth.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.