These European Blue Chips Offer Better Value than Their U.S. Peers
As we head into the final weeks of 2013, European central bankers are on pins and needles. They’re hoping the fourth-quarter economic data reveal signs that the Continent is truly on the mend.#-ad_banner-#
An early November report from the European Commission sees signs of that upturn coming. The report’s main takeaway: “The signs of hope that we saw last spring have started to turn into tangible positive outcomes. After six consecutive quarters of stagnation or contraction, the EU economy has posted positive growth in the second quarter of 2013. The recovery is expected to continue, and to gather some speed next year.”
Indeed, while the European economic region likely contracted a bit in 2013, these economists predict GDP will likely grow 1.5% in 2014, and perhaps 2% in 2015. And where will that strength come from? “Domestic demand is expected to take over as the main engine of growth,” they predict.
If they’re right, then it’s useful to make sure you have European exposure in your portfolio. Heading into Labor Day, my colleague David Goodboy profiled the Vanguard FTSE Europe ETF (NYSE: VGK).
A quick look at a five-year chart of this ETF against the S&P 500 Index shows the extent to which European blue chips have lagged. The outperformance for U.S. stocks really began to pull away in late 20109, when it became apparent that the U.S. economy was on the mend while Europe was not. Now, with Europe perhaps on the mend as well, global investors are likely to allocate more funds to European stocks and funds.
If you prefer stock selection to ETFs and mutual funds, then you’ll find that a number of leading European stocks are still attractively priced, relative to their U.S. counterparts.
Here are three of them:
Risks to Consider: The European Commission’s report highlighted the rising chances for an economic rebound but also took note of risks that could derail the nascent recovery. I encourage you to read that full report before considering investing in Europe.
Action to Take –> After an amazing multi-year run, the U.S. market should not be home to 100% of your portfolio. Instead, it’s wise to spread your assets around to emerging markets and Europe, which accounts for a quarter of global economic activity.
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