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How To Profit From The European Economic Recovery

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Why It Is Time To Invest In The European Economic Recovery

European Economic RecoveryWith a European economic recovery on the horizon, there are many investment opportunities presenting themselves to value investors.  Europe’s economy, which is really an amalgam of the two dozen or so countries that make up Europe, has been mired in recession for the better part of the past two years and general economic sluggishness since the 2008/2009 economic crisis.   During the summer of 2013, there have been indications that Europe’s long economic slump is ending, and a European economic recovery is taking hold.

Many economists and market watchers expect the European economic recovery to sustain itself through 2014 and beyond, which presents a number of value-oriented investment opportunities.  European stock markets, on average, are trading at lower price earnings levels than United States stock markets.  Investor sentiment has been overwhelmingly negative in recent years regarding European stocks.  Since stock prices and stock price discovery are affected in a large way by investor sentiment, many European stocks are trading at discounts to their normalize price earnings value.  With European economies starting to grow again and the economic growth expected to continue, European companies should be able to increase their earnings in coming years.  It is likely that stock valuations in Europe will increase as earnings increase.

How To Invest In and Profit From European Economic Recovery

European Economic Recovery Investments
With European stocks trading at a discount to their normalized earnings, there are a number of ways to invest and profit from the European economic recovery.  Many of the top European companies have stocks that trade on United States stock exchanges via American Depositary Receipts (ADRs), which are essentially indirect holdings of a foreign company’s stock.  Many other European companies have stocks that trade in the United States on (Pink Sheets) trading platform.

Identifying the European stocks that can be purchased in the United States and are trading at a discount to normalized earnings is a good way to position an investment portfolio to profit from the European economic recovery.  As the European economies recover and profits normalize (which means they return to the normal trend that was in place before the economic slump), it is a reasonable to assume that buyers will be drawn in and bid up the shares of many European stocks.  Of course, the key to successfully implementing this investment strategy is to get in early and ride the price of European shares higher.  This strategy could also be used by medium term traders that are looking to scalp some profits from the European economic recovery.

In addition to stocks, there are also a number of exchange traded funds (ETFs), exchange traded notes (ETNs), mutual funds that are focused on Europe, which can be used to either invest in or scalp profits from the European economic recovery.

European Economic Recovery Investment Ideas

Investing In The European Economic Recovery
Whether one is a long-term investor or a medium-term trader, there are a number of investment ideas that may work as the European economic recovery gains strength and takes hold.

European Financial Stocks – Just as financial stocks in the United States have outperformed the overall stock market during the economic recovery, select beaten down European financial stocks that do not carry a great deal of debt burden may provide above average upside during the European economic recovery.

European Industrial Stocks – Europe’s manufacturing index is, for the first time in years, providing readings that indicate an expansion is occurring in the European industrial sector.  It is not unreasonable to assume that some of the European industrial stocks that have been hit hard by the slowdown in Europe will recovery nicely as Europe’s economy recovers.

Publicly Traded United States Based Companies That Have Large Exposure To Europe – It wasn’t long ago that companies based in the United States that had exposure to European economies where shunned by United States based stock analysts and investors.  However, with Europe’s economies on the cusp of an economic recovery, many of these same companies are the ones that analysts and investors may want to take a look at to reap the benefits of an economic recovery in Europe.  These include companies such as Newmont Mining (NYSE:  NEM), which generates over 70% of its revenue from Europe, Carnival Corporation (NYSE:  CCL), which generates approximately 35% of its revenue from Europe, (NASDAQ:  PCLN) which generates in the neighborhood of 60% of its revenue from Europe, and Gilead Sciences (NASDAQ:  GILD) which generates approximately 30% of its revenue from Europe.

European Funds – There are a number of ETFs, ETNs, mutual funds that have their investment focus exclusively on Europe.  Funds that are primarily invested in European financial and industrial companies might outperform others, as Europe’s economies recover.  Funds that focus on middle and small capitalization European shares may be big winners, if the economic recovery in Europe is a lasting one, since smaller companies often outperform larger companies in the early years of an economic recovery.  Large capitalization European stocks should also do well as the recovery takes hold, especially as the recovery matures.

  • Vanguard FTSE Europe ETF (NYSE:  VGK) – VGK tracks the performance of the FTSE Developed Europe Index, which is comprised of approximately 500 stocks of companies located in seventeen European countries, with the focused on core European countries.
  • SPDR S&P Emerging Europe (NYSE:  GUR) – GUR tracks the performance of the S&P European Emerging Capped BMI Index.  Its focus is on companies doing business in emerging European markets that are on the periphery of Europe.
  • WisdomTree Europe SmallCap Dividend (NYSE:  DFE) – DFE tracks the performance of the WisdomTree Europe SmallCap Dividend Index.  The fund is comprised of small capitalization dividend-paying European companies.

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2 Responses to “How To Profit From The European Economic Recovery”

  1. chitra says:

    Thanks for the post. Its a great opportunity for the investors


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