Time to Invest in Europe? 3 Stock Choices - Analyst Blog
Zacks By Swarup Gupta
3 hours ago
For some time now, Europe’s economy has been traversing rough waters. Economic data has been disappointing and geopolitical tensions have kept investors worried. While an uneasy truce has been reached on Ukraine, Greece debt negotiations remain unresolved. But new economic data and stock market performance indicate that it may a good time to buy into Europe after all.
Markets Moving North
Markets are already showing signs of further gains. The Dow has gained a little more than 1% until now this year. In comparison, the STOXX Europe 50 Index has gained over 10% year to date while Germany’s benchmark DAX has moved up nearly 12%.
Moreover, compared to U.S markets, equity securities in Europe are attractively priced. This makes it the correct time to invest in the continent. Fund managers believe that earnings growth and corporate margins have hit their highest point in the U.S. On the other hand, Europe may be well positioned to perform better than the U.S. this year.
Economic Data Improves
Eurozone’s fourth quarter GDP rose 0.3%, better than the estimated 0.2% gain. Fourth-quarter growth was led by Germany, which reported growth of 0.7%. This was more than twice the projected 0.3% increase. Spain also reported 0.7% growth, boosted by cheaper oil which lifted consumer spending.
In Germany, the ZEW current conditions index has come in at 45.5, smashing a prior 22.4 reading. The ZEW economic sentiment index came out at 53, also beating a 48.4 prior reading. Additionally, EU trade balance numbers were exceptional, at 5756 million euros. The prior reading was 3539 million euros. The weak euro helped exports, and the low price of oil reduced the cost of imports.
Will “Grexit” Happen?
The one factor which has plagued Europe’s investment climate repeatedly is the impasse over Greece’s bailout program. Talks between Greece’s new anti-austerity government and Eurozone finance ministers had broken down on Monday. European Union finance ministers insisted on keeping austerity measures as part of the condition for extending the bailout program.
According to them, Greece has to abide by budget cuts or economic overhauls that were applied in the existing bailout program. Greece said these measures were hurting its economy. Further, Greece claimed the European Union finance ministers haven’t given them much flexibility in implementing these measures.
It seems increasingly unlikely that Greece will default on its loans and exit the Eurozone. Reportedly, Greece intends to seek an extension of the country’s loan agreement from the rest of the Eurozone on Wednesday. The extension on its debt obligations could be between four to six months. This will give Greece additional time to negotiate a new bailout program with its creditors. However, conditions for request of new rescue deal were still under negotiations. The current deal is about to expire this month.
Our Choices
Below we present three stocks which will gain from these trends, each of which also has a good Zacks Rank.
Alcatel-Lucent (ALU) is a leading global provider of IP and Cloud networking, ultra broadband fixed and mobile access. The company operates its business under two primary segments: Core Networking and Access.Alcatel-Lucent is a world-wide leader in in the IP (Internet Protocol) market. It is also a leading service provider, for both wireless communications infrastructure and fixed broadband access.
Alcatel holds a Zacks Rank #2 (Buy) and has expected earnings growth of 32.2%. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 21.61.
Barclays PLC (BCS) is a major global banking and financial services company, with over £1.4 trillion ($2.2 trillion) in assets as of Sep 30, 2014. Barclays has more than 300 years of expertise in banking and operates through an international network in over 50 countries. The company provides a wide range of financial services to individuals, corporations and institutions.
Apart from a Zacks Rank #2 (Buy), Barclays has expected earnings growth of 22.9%. It has a P/E (F1) of 9.28x.
Nokia Corporation (NOK) has three operating segments. Nokia Solutions and Networks (NSN) provides wireless and fixed network infrastructure. HERE provides digital map information. The Advanced Technology Segment deals with the licensing of intellectual property rights to companies interested in Nokia’s innovations.
Nokia holds a Zacks Rank #2 (Buy) and has expected earnings growth of 15.9%. It has a P/E (F1) of 22.12x.
Europe’s economy may still have its difficulties, but a variety of factors indicate that it is about to emerge from the gloom. Recent growth numbers are among the foremost of these. Adding these stocks to your portfolio would make for a prudent choice.