With the Standard & Poor’s 500 Index off to its best January in 15 years, it’s getting tougher to find cheap stocks in the United States. But it’s not much of a problem in Europe.
Sovereign default worries have made the region’s shares the cheapest they’ve been to American investors since 2004.
Companies in the S&P Europe 350 are trading at around 10 times earnings for 2012, compared to 12.2 for the S&P 500. That means investors are getting a 20 percent-plus discount for looking across the pond.
For good reason, of course. Investors are still nervous about the future for European equities, since no one yet knows how the debt crisis is going to play out. On any given day, fresh rumors abound regarding the dismal outlook of nations like Greece, Spain, or Italy.
For speculators with nerves of steel, the point of maximum fear is when you can often make your most lucrative bets. And big, blue-chip European companies — the powerful multinationals that aren’t going to disappear, no matter what happens to Portuguese bond yields — look to be on sale. With their U.S.-listed ADRs (American Depositary Receipts), buying shares is a snap.
“There are a lot of European companies that look attractive right now,” says Stan Pearson, head of European equities for Standard Life Investments. “Focus on world-class companies with geographic diversification and strong balance sheets. Then you won’t even have to make a judgment about the Euro, because those companies will be able to weather whatever happens.”
