4 European Value Stocks Getting Ready to Run

Rudy Martin

Have you ever done something completely opposite from your instincts? I did a while ago, with surprising results.

My landscaping firm — with which I was already unhappy — raised its rates and I decided to hire a different one. I was excited to see what the new company could do for me.

But when I returned home the day of the new company’s first treatment, my yard was a catastrophe! The partially trimmed hedges looked like a spiked haircut gone bad. Loose clippings covered the driveway and walkways.

I was not happy, and my intuition was to immediately terminate the new landscaping firm and look for another. But because I was tired of evaluating those outfits, I decided to try a strategy contrary to my basic sensibilities.

I’m still not sure why I decided to let the second crew return. But this time, I made one change to our business relationship that completely changed the outcome of their visit.

That day, I decided to work from home, so that I was there to greet the landscapers before the next yard treatment. When they arrived, I forced a big smile, walked up to the senior person, shook his hand and thanked him for his work on my property. I told him to let me know if they needed water or anything else.

Then I reached for his shirt and stuffed a $5 bill into his breast pocket. I did the same with his assistant. I crossed my fingers in paying their bill and wrote on the invoice, "Your crew is great!"

Every time I’m home when they landscape my property, they get the same treatment — including the $5 bills — except that the complimentary messages I jot on the invoices are now totally sincere and accurate.

Thanks to this very counterintuitive behavior, I think some nearby residents are jealous. Their neighbor Rudy’s property now looks like a magazine cover!

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Rudy Turns to Europe

Now I’m edging into another area that many investment managers might consider counterintuitive. My approach is very deliberate, and my only goal is to enhance the performance of my Global Trend Trader model portfolio.

The change is that I am devoting more attention to investment opportunities in Europe. That’s right — the same continent plagued by years of recession and seemingly endless financial crises in its southern tier.

"Conventional wisdom" says Europe has been down so long that we can safely ignore its investment potential. I think that is a huge mistake!

Maybe other analysts have been negative on Europe so long that any positive take on the region seems counterintuitive. I’ve tracked European stocks without prejudice throughout the continent’s difficult spell — and European names have appeared regularly in my Global Trend Trader recommendations.

I’m not ignoring Europe right now, and here are five reasons why other investors should be paying attention to Europe right now, too …

5 Reasons Not to Ignore Europe

  • The European Union is more-populous than the United States;
  • Most Northern European economies — especially Germany — are doing well;
  • In Southern Europe, Spain is finally showing some growth, while Italian bond prices are improving;
  • The United Kingdom shows signs of economic recovery on several fronts; and
  • Unlike the U.S., European stock prices are still far below their pre-crisis levels.

My specialty is trend analysis. The most profitable trends are big reversals, and smart investors try to catch them just as they begin their ascent. Europe has been down for so long that many investors simply aren’t paying attention anymore. The profit potential can be downright huge.

In fact, while some major U.S. stock market indices are up well over 100% since their bear market troughs, the $4.2 billion SPDR EURO STOXX 50 ETF (FEZ) is barely 75% above its bear market low.

FEZ needs to gain more than 60% from its current level just to match its 2007 crest.

This tells us something important: European stock markets are still early in the recovery process — with plenty of room to grow!

Think of how U.S. equities pushed steadily higher over the past few years. Most of that growth potential still exists for European stocks IF they can get their economies into a steady recovery mode.

While the Continent has chronic economic obstacles like embedded socialism, restrictive employment laws, and aging/declining populations, conditions don’t have to be perfect to be attractive.

As I alluded to last week, what region of the world doesn’t have problems—including the United States?

Wall Street Waking Up to Europe’s Potential

A recent report from JPMorgan (JPM) backs me up on this constructive view of Europe. Although JPM expressed caution on European firms involved in China, the report was enthusiastic about prospects for Continental firms in other areas. JPM now has an "Overweight" rating on Europe.

European "value" stocks are poised for a long upward run, according to JPM’s analysts. Their list of "JPM Sustainable Dividend Payers" includes British healthcare giant GlaxoSmithKline (GSK).

This category includes "those that can grow dividends steadily and deliver sustained dividend growth." In addition, JPM analysts think European consumer plays "appear well-placed to deliver superior long-term growth."

From Britain With High Yields

Taking a cue from the JPMorgan report, I selected four European stocks with dividend yields over 4%. The results in the table are a relatively conservative approach for anyone who is still gun-shy about moving back into Europe.

The list includes GSK and three other U.K. companies with worldwide reach. You can get worldwide financial exposure with international banking firm HSBC Holdings (HBC) and stable income with British American Tobacco (BTI).

In addition to GSK, AstraZeneca (AZN) is another pharmaceutical name with growth potential and relatively secure dividend income.

All these stocks have been on my watch list for quite a while, along with many other European names. While none are currently in the Global Trend Trader model portfolio, I did recently add a very interesting company from the former Soviet Union. Its decidedly un-Soviet management is combining cutting-edge technology with a savagely capitalist drive to optimize profits.

Whether it’s Western Europe or Eastern Europe, I’m ready and willing to buy … as soon as I think a favorable trend is in place. But the only way to know when that happens is to be a member of my service. Click here to see the benefits of joining today!

Happy hunting!

Rudy Martin

P.S. After I filed this column, the European Central Bank cut its benchmark interest rate to a record-low 0.25%. The ECB is determined to keep Europe’s recovery alive. As we’ve seen here in the U.S., nothing drives stocks higher than a friendly central bank. This could be the turning point for European stocks. I’ll have more analysis for Global Trend Traders soon … along with a new trade today!