Civil unrest. Credit rating downgrades. Austerity measures. Multiple bailouts to ward off a massive and multi-country sovereign debt implosion. A collapsing currency. And financial markets getting spanked, hard.
Add it all up and what do we get? Life in the eurozone for the past year or so.
Ironically, it’s also the ideal scenario for uncovering above-average yields. I’m not kidding. When panic strikes, investors sell indiscriminately. And every last stock ends up in the trash pile.[ad#Google Adsense 336×280-IA]Case in point: In late June, European stocks plumbed their lowest valuations since March 2009, trading at a price-to-book (P/B) ratio of just 0.9.
The severe dip prompted several in the “smart money” crowd to go dumpster diving in the eurozone.
Bloomberg reports that money managers at Invesco Ltd. and JPMorgan Chase (NYSE: JPM) increased their holdings in eurozone countries, including Italy, Germany and Spain.
I’m convinced it’s time for us to consider following their lead.
Here’s why… and more importantly, six opportunities to consider, with yields ranging from 4% to 12.2%.
Don’t Look Now, But Europe’s Rallying
Please understand, I’m not asking you to try to catch a falling knife. Believe it or not, European stocks have actually arrested their slide. And now they’re rallying.
Since August 1, the EURO STOXX 50 Index – an index of 50 blue-chip European companies from 12 eurozone countries – is up 12.8%. Given that stock markets are forward-looking beasts, it’s clear the future looks less dire.
Or as Will James, a European stock fund manager at Standard Life Investment, said, “It’s not as bad as the headlines suggest… You have companies across Europe that have very strong balance sheets and don’t have to go to the debt markets.”
I completely agree. The good news is we haven’t missed the opportunity. Even after the recent rally, European stocks remain cheap.
The current P/B ratio checks in at 1.1. To put that figure into perspective, consider that the S&P 500 Index trades at a P/B ratio of 2.1. In other words, European stocks are almost 50% cheaper than U.S. stocks.
Stephanie Butcher, who helps manage $62 million at Invesco, sums up the situation perfectly, saying: “This is a region that has been hugely de-rated, that has a lot of high-quality international assets that are very lowly valued. This is an unusual circumstance and one offering genuine opportunities.”
Indeed. And the easiest way to capitalize on it – and earn a respectable yield in the process – is to buy the SPDR EURO STOXX 50 ETF (NYSE: FEZ).
The exchange-traded fund tracks the EURO STOXX 50 Index, investing in 50 of Europe’s bluest of blue-chip stocks. As such, it provides a solid dose of diversification, which reduces our downside risk.
The fund charges a reasonable expense ratio of 0.29%. Best of all, though, it currently yields 4.16%. That’s two-and-a-half times more income than 10-year U.S. Treasury bonds.
Moreover, options are traded on the fund, allowing us to “juice” our income by writing covered calls, if we want.
If we’re looking for a little bit more yield – and don’t mind taking on a little bit more risk – we can invest in individual, blue-chip European stocks.
Here’s a list of five specific companies to consider, including relevant information. (Please note, all five are held in the SPDR EURO STOXX 50 ETF.)
Bottom line: The idea of investing in Europe for income, of all things, probably makes your head spin.
But as Weyman Gong at wealth management firm, Signature, says, “This dividend-paying stock segment [in Europe] is the most stable in the market.” Couple that with the current yields above 4%, and it’s an opportunity worth considering… before it disappears.
Source: Dividends and Income Daily