While 2013 could easily be another great year for U.S. blue-chip stocks… I believe much bigger stock market gains are possible in a place where nobody else is buying right now…

I’m talking about Europe…

While U.S. blue-chip stocks are reasonably cheap, European blue-chip companies are cheaper in every way.

I know what you’re thinking… Europe is a mess.

[ad#Google Adsense 336×280-IA]Its countries are debt-laden.

And the overall economy is bordering on recession.

Nothing good happens in Europe, right?

That’s what the headlines say.

And that’s what created our incredible opportunity last year…

The U.S. Dow Industrials Index returned double digits in 2012.

But European blue chips more than doubled that return. And they’re set to double it again this year.

Last April, I showed readers how cheap a few of Europe’s household names had gotten. Big oil company Total (TSS) was trading at 6.8 times forward earnings… and yielding a huge 6%. Drugmaker Sanofi (SNY) was nearly as cheap… so was manufacturing giant Siemens (SI)… communications company Telefonica (VIV)… and more.

The “Dow Jones Industrials of Europe” is the Stoxx 50 Index. At the time, the whole index of blue chips was yielding an incredible 5.2%. Excluding the financial crisis, European stocks are coming off their highest dividend yields in nearly 20 years.

Since then, the Stoxx 50 is up 20.5% (including dividends). The Dow Jones Industrial Average is up just 6.7% over the same period.

After this big outperformance, you might expect European blue-chips to underperform the U.S. But I expect the opposite for one simple reason… European companies are still dirt-cheap compared to the U.S.

The table below clearly shows it. Take a look…

As you can see, European blue chips are cheaper than their U.S. counterparts in every way. To match the price-to-book ratio of U.S. blue chips, European blue chips would have to more than double!

Now, I don’t expect a quick double in European stocks. I think a better way to get a gauge of what to expect in 2013 is to look at earnings…

Analysts figure the U.S. Dow Jones Industrial Average will increase earnings 9% over 2012… and the Euro Stoxx 50 Index will increase earnings 11%.

Stocks to tend to rise as earnings grow. If earnings grow 11%, the Stoxx 50 will also have to increase 11% to maintain its current P/E ratio. I believe that will happen. I also believe the Stoxx 50 will close at least half the valuation gap between it and the U.S. Dow (currently a 12% discount).

If that happens, we’re looking at a potential 18.3% gain this year. If the Euro Stoxx 50 closes the entire discount, our upside is 25.9%.

Of course, earnings could disappoint. And outside events could cause valuations to fall. But that doesn’t change the simple fact…

If you want to own blue-chip businesses this year, the best value around is in Europe.

You can easily make the trade with the SPDR Euro Stoxx 50 Fund (NYSEARCA: FEZ). This fund perfectly tracks the Euro Stoxx 50.

European blue chips crushed their U.S. counterparts in 2012, more than doubling their total return. And I believe we’re set up to see the same thing happen in 2013.

If I’m right, safe 18%-26% returns are possible this year. Don’t miss out.

Good investing,

Brett Eversole


Source: DailyWealth