The U.S. economy is the envy of the developed world, and our stock market reflects that.
Not only have U.S. stocks been worldbeaters, but they also represent more than half of the total market value of the world’s listed stocks.
But that may not be sustainable.
In fact, international markets from Europe to Asia are showing signs of potential, offering early investors the opportunity to springboard into “catch-up” growth.
And while Asia, particularly Southeast Asia, has more favorable demographic trends, European stocks are appealing in their own right. Most notably, on valuation.
European stocks are cheaper than U.S. equities but overall produce lower revenue and profit growth in part due to tech being a smaller proportion of the market. The stocks in the Stoxx Europe 600 are priced at about 15 times earnings, while the S&P 500 index is trading at roughly 30 times earnings.
This is the biggest gap in two decades. There is plenty of room for catch-up growth as, since 2000, U.S. markets have posted a 300%+ increase, while the Stoxx Europe 600 has only risen by 35%.
European multinationals also provide investors with more international exposure since about 60% of European companies’ sales occur outside Europe, versus 30% for S&P 500 American companies, according to a study by Wellington Management.
High-quality European multinationals are a good place to start as they are widely recognized as being well-run and have tentacles spread throughout the world. Many of them make as much money in America as Europe, highlighting that where a company operates and makes money is much more important than where it bases its headquarters.
Some of these European multinational stocks either trade on the NYSE or Nasdaq but many trade over the counter in a category I refer to as “pink-sheet blue chips.”
These European stocks can be largely divided into several groups.
4 Types of European Stock to Buy Now
The first group is the pharmaceutical giants like Novo Nordisk (NVO), Roche (RHHBY), Novartis (NVS), and GSK (GSK), all of which benefit from a healthcare spending boom to post impressive profits.
Another is the luxury goods brands such as LVMH (LVMUY) and L’Oreal (LRLCY). China has been the key driver to both companies, so this story is sputtering as Chinese luxury spending is slowing down along with its overall economy. However, global luxury spending is expected to remain relatively stable, despite some signs that consumers are cutting discretionary purchases.
Then there are the well-known consumer stocks such as Nestle (NSRGY) and Unilever (UL). These are conservative ways to tap into global consumer markets and earn some steady dividend income. These stocks tend to be less volatile but have a decided upward trend in stock price over time.
Next are tech companies such as ASML Holding (ASML) , the strategically important semiconductor chip equipment business from Holland, and software company SAP SE (SAP) from Germany.
These are all quality stocks that would likely be in any European mutual fund, but of course, we want to do better than that.
Please consider becoming a member of the Cabot Explorer to learn which European stocks have stood out as the most promising that I’ve found while traveling the globe in search of new opportunities for the Explorer portfolio.