The political chaos surrounding Greece and the Eurozone has unsettled global markets.
Yet regardless of whether Greece exits the euro or not, money managers still like the outlook for European stocks this year.
And while European equities may take a hit short-term, they still look attractive relative to US and Asian markets.
European Flair
Consider that the S&P 500 Index and Dow Jones Industrial Average are basically break-even for the year as of July 6.
In contrast, the Euro Stoxx 50 Index has advanced 7% and stock markets in France, Germany and Spain are up by double-digit levels.
Valuations
First off, European stocks are a bargain versus US stocks.
European stocks recently had a forward price-to-earnings ratio (P/E) of 15.1, compared with 21 for the S&P 500.
If anything, the recent Greek-induced selling pressure has made many quality European stocks even more attractive.
ECB Pump-priming
Secondly, while the US Federal Reserve is about to starting raising rates, the opposite is true in the Eurozone.
The European Central Bank only launched its massive quantitative-easing (QE) program this year.
The bond-buying effort and ultra-loose monetary policy have weakened the euro against major foreign currencies. That’s good news for European exporters.
European Upcycle
While the US stock market is now in its sixth year of a rising trend, some analysts see European stocks are the beginning of its upcycle.
As Covestor manager Charles Sizemore, founder of investment adviser Sizemore Capital Management, recently told US News & World Report:
“Investors had left Europe for dead, but Eurozone GDP growth might actually finish the year higher than US GDP growth. The European economy appears to have bottomed out, whereas the US economy may be topping.”
Spain
Sizemore says he expects European stocks to outperform their US counterparts for the next five to 10 years.
And he’s particularly bullish on Spain.
Says Sizemore: “Spain should have reasonably good growth this year, and its companies are among the most globally diversified in the world.”
He recommends taking a serious look at the iShares MSCI Spain ETF (EWP), which consists of Spanish blue chips.
Takeaway
There’s no denying the multi-act Greek drama has added uncertainty to the Eurozone’s economic outlook.
Yet for investors with a long-term view and the right risk tolerance, European stocks are worth a look, according to analysts.
European bulls may actually capitalize on the increased Greek-inspired selling to pick up bargains.
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Photo Credit: Moyan Brenn via Flickr Creative Commons
Any investments discussed in this presentation are for illustrative purposes only and there is no assurance that any manager will make any investments with the same or similar characteristics as any investments presented. The investments are presented for discussion purposes only and are not a reliable indicator of the performance or investment profile of any composite or client account. Further, the reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions made by model managers in the future will be profitable.
