Why Europe May Be Your Next Buying Opportunity

By George Leong

Investment Contrarians | Sep 4, 2013

Well, it may be time for you to begin looking at Europe again as a buying opportunity. As my readers know, in these pages, I have shown some previous negativity toward the region; however, let me explain why I feel Europe may offer a buying opportunity now.

There are over 800 million inhabitants in Europe, so it’s a massive market for companies and those in search of a buying opportunity. The middle class and wealthy are established and ripe for products and services.

The region still has its fair share of issues, including an unemployment rate of 12.1% in the eurozone in July and 11.0% in the European Union, according to Eurostat.

Yet in spite of the fact that over 26% of workers are pounding the pavement looking for work in Greece and Spain, the economy of Europe has been slowly improving and moving towards growth.

The recession in the eurozone may be nearing an end, and this could potentially be a buying opportunity.

Industrial production rose 0.7% in the eurozone in June, which was a big improvement over the 0.2% contraction in May, according to Eurostat. Construction in the eurozone jumped 0.7% in June versus the 0.5% rise in May. Again, a potential buying opportunity may be forming.

You can also add in the fact the eurozone’s inflation rate stood at 1.6% in July—an improvement over the 2.4% in July 2012—and the ability of the European Central Bank (ECB) to maintain its low interest rates.

The chart below of the iShares S&P Europe 350 Index (NYSEArca/IEV) shows the steady rise in stock prices since June 2012. The successive highs and lows point to additional gains above the 50- and 200-day moving averages (MAs).

Chart courtesy of www.StockCharts.com

Comparatively, it appears to make sense to rotate some capital into Europe, namely companies from Germany, the United Kingdom, and France.

You can enter via exchange-traded funds (ETFs), including the following: iShares S&P Europe 350 Index; iShares MSCI Germany Index (NYSEArca/EWG); iShares MSCI United Kingdom Index (NYSEArca/EWU); and iShares MSCI France Index (NYSEArca/EWQ).

Alternatively, there is also a buying opportunity in U.S. multinational companies that have a strong presence in Europe. These include The Procter & Gamble Company (NYSE/PG) and The Coca-Cola Company (NYSE/KO).

You can also play the index options market by buying options in European ETFs like what I listed above.

So while U.S. stocks are at record highs with much of the easy money already made, this is not the case in Europe, especially if the region continues to strengthen and provide a buying opportunity.

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