5 Ways To Profit From Europe’s Coming Bull Market
The eurozone is experiencing a perfect storm of bullish catalysts. Tremendous profits are available for risk-embracing investors who heed the clear economic signals.
Make no mistake, political risk, although improving, remains high in Europe. The eurozone has experienced quite a bit of volatility this year. Greece, Brexit, and fears of a nationalist French state following Brexit out of the European Union added tremendous political uncertainty to the financial markets.
The Bullish Case
Fortunately, many of these fears have proven unfounded. The recent French election resulted in the victory of the pro-eurozone candidate, improving sentiment across the board.
Due to the political uncertainty, on a price-to-book ratio European equities are nearing levels equivalent to U.S. equities’ 40-year lows. Eurozone equities have severely underperformed the U.S. market since the 2008 rout. As a result, full value has not been realized and opportunities exist for profit-seeking investors.
Analysts are forecasting EU stock earnings growth of 11 percent in 2017 due to the commodity recovery, small margins, and improved currency environment. When compared to expected growth of just 9 percent in the United States, it’s obvious where the opportunity lies.
5 Ways To Ride The European Bull Market
1. Federated International Leaders Fund (Nasdaq: FGFAX)
This $1.6 billion fund is the easiest way to diversify across a wide swath of the eurozone’s largest companies. It boasts around 80% of its assets in the major European nations. It has a long-term outlook calibrated to perform over a minimum of three years and targets holdings between 40-60 international companies.
FGFAX looks for stocks trading in the value zone at 30%-plus below their intrinsic worth. It has been on fire recently, gaining over 16% this year to date and 19% over the last 52 weeks.
#-ad_banner-#To be sure, the fund has not always performed as well. It has posted a negative 1.4% return average over the previous three years. In fact, over the last decade it has only returned an average annualized 3%. The good news is has outperformed the MSCI EAFE’s (an index designed to track developed markets outside of North America) average 2.3% decline over the same time frame. It has also provided better performance than over 90% of funds in the same sector.
Right now is an ideal time to purchase the fund for the reasons discussed above. However, it is critical to note that FGFAX comes with hefty fees. It charges a 1.21% expense fee and an aggressive 5.5% front-end load.
The good news is that, even accounting for the high cost, the fund has returned 8% over the past year.
2. Credit Suisse (NYSE: CS)
A significant financial holding of the Federated International Leaders Fund, Credit Suisse is a massive, diversified international financial services company headquartered in Switzerland.
After moving higher on the enthusiasm of the loss of French nationalist candidate Marine Le Pen, shares have plunged to below the 50-day simple moving average (SMA), yet remain above the critical 200-day SMA.
3. Visa (NYSE: V)
Shares of this international credit card issuer are higher by over 17% this year and are poised to continue higher on the improving conditions in the euro zone.
Price has moved steadily higher but has just fallen off the upward trend on the back of the stock-positive French election. The classic “buy the rumor, sell the news” scenario is playing out, setting up an ideal purchase opportunity for the company.
The primary reason Visa is on the list is that it has a history of trading bullishly as the euro moves higher. Centrist Emmanuel Macron’s French election victory has resulted in the euro hitting a six-month high against the greenback. There was a very real fear that a populist, right-wing victory could lead to the breakup of the unified currency which would force prices much lower.
Other bullish news includes Visa’s recent acquisition of Visa Europe, resulting in improved earnings and robust growth. The company stated, “Second-quarter revenue grew 23 percent year-over-year as the company continued to see benefits from the closing of the acquisition of Visa Europe.”
Finally, a push into cryptocurrencies and unique payment methods, such as with a connected pair of sunglasses, should continue to push shares higher.
4. McDonald’s (NYSE: MCD)
This American fast food giant and original innovator has seen its shares rocket over 18% this year in a very stable upward trend.
The company has substantial exposure to the European markets, and the new stability and climbing euro should continue to power shares higher.
MCD keeps beating estimates in spite of all the new competition and rumored struggle to maintain relevancy in the face of changing consumer tastes.
A refranchising program has helped transfer costs to the franchisees from the corporate parent resulting in lower costs, hence higher fundamental metrics.
Add in the efforts to modernize with smartphone apps, kiosk-style ordering, and menu experimentation, and I expect this giant to continue to move higher this year.
5. iShares MSCI France ETF (NYSE: EWQ)
This ETF is focused on French companies and has soared over 17% this year. EWQ provides ready-made diversification directly into French companies rather than international names. Its gains accelerated as the French election neared, but sold off when the bullish news hit the wire. The price pull back from the steady upward trend creates an ideal buy opportunity for savvy investors.
Action To Take: Diversify your holdings by investing in one or more of these eurozone securities. Remember that political risk still threatens EU stability, so make sure to only allocate a maximum of 2% of your portfolio to any one of these holdings.
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