European firms see opportunity in crisis, says Evermore’s David Marcus
David Marcus, co-founder, CEO and CIO at Evermore Global Advisors, looks to examples of companies doing well in Europe, which serve to illustrate the ongoing investment opportunities.
While conditions in Europe have been a little less volatile than they were a year ago and talk about “the end of the euro” is rarely heard anymore, the sovereign debt crisis is far from over, as the recent turmoil over a bailout of Cyprus has demonstrated.
Not surprisingly, a crisis of this magnitude has frightened many investors who decided that the most prudent course is to avoid the European continent altogether. The history of investment markets however has demonstrated that those who run from crisis may also be running away from a tremendous opportunity.
In every crisis event of the last 50 years, investors who stepped up in the midst of the turmoil were able to reap the greatest benefits. A great example is the 1997 Asian Contagion, when investors fled from the Far East, saying, “It turns out China’s not what we thought.”
Those investors who identified opportunities among Asian companies at that time were probably early in the game and needed the fortitude to stomach additional losses. But those who did were able to realize multiples of what they had put in and in many cases were disappointed that they had not made a bigger bet. Our view is that Europe is likely poised for the same thing.
What many investors have failed to realize is that many European companies have reacted to the crisis around them by taking drastic steps to reinvent themselves.
In some cases, it’s simply a matter of kicking into survival mode, but there are also management teams who “don’t want to see a good crisis go to waste,” and view the current economic turmoil as an opportunity to streamline and restructure their operations in order to come out of the crisis stronger and more competitive.
And although many were slow to get moving, governments in most European countries have reacted by relaxing some of the labour and other regulations that have hampered business development. They have realized that if they don’t help companies, they’re going to have even more people unemployed.
For the first time in decades, European firms have been pushing back against labor unions in order to take steps like reducing headcounts, closing redundant facilities and creating a much more productive workforce.
The herd mentality of the investing class leads to an indiscriminate selloff in times of crisis resulting in a precipitous decline in stock prices. Over the last few years, this has created opportunity in Europe for investors able to see the value in companies whose stock prices have declined precipitously but still hold significant assets or great potential for a turnaround.