Europe has had its share of challenges in recent years, what with the Greek debt crisis, refugee inflows and the possibility that Britain may actually leave the European Union when voters weigh in a referendum set for June 23.
The Euro Stoxx 50 Index, Europe’s leading blue-chip index for the Eurozone, has been pretty volatile over the last year and is down about 5% for the year as of May 31.
Value Play
So would investors be wise to steer clear of European blue chips?
Not necessarily, in my view, if you have a tolerance for some risk and are looking for value plays in your international portfolio.
By some measures, European stocks are far more attractive than US and emerging market equities at the moment, according to Jason Zweig who wrote an interesting article in the Wall Street Journal.
Zweig points out that, “the average price to book value of European stocks has been about 25% below that of U.S. stocks; as of April 30, it is 40% lower,” citing data from MSCI.
On top of that, Zweig notes: “The dividend yield on European stocks, historically about one-third higher than in the U.S., is 69% higher.”
Brexit Bounce
Also, European stocks, particularly banks, should get a nice bounce if Britain votes to stay in the EU, in my opinion.
True, opinion surveys show the stay supporters (46%) with only a slight edge over the leave contingent (41%), according to the latest reading from the Financial Times Brexit Tracker.
However, the London oddsmakers suggest a 82.6% probability of Britain voting to stay in the European Union, according to data cited by Reuters as of May 25.
If the stays prevail, European bank stocks may rally.
David Herro, a fund manager with Harris Associates, likes BNP Paribas of France, Italy’s Intesa Sanpaolo and London-based Lloyds Banking Group, given their low prices and relatively high-dividend yields
That said, the British currency is expected to appreciate if the stays win, which could damage the export earnings and stocks of major multinationals short-term.
Takeaway
European stocks have been under pressure from a myriad of challenges.
But in terms of valuations, like book value and dividend yield, there is real value to be had for the discerning investors, in my view.
Financial stocks could be set for a rally if British voters opt to stay in the European Union.
Photo Credit: Camilo Rueda Lopez via Flickr Creative Commons
