Is It Time To Buy Europe? - Real Time Insight
May 11 2012 - 9:05AM
Zacks
Clearly, the situation in the euro zone is a mess. The recent
elections across the region suggest that pro-austerity policies may
have to take a backseat for the time being as a more growth
oriented approach is attempted.
Meanwhile, the conditions in Greece are growing extremely
precarious as a coalition government seems unlikely and even if it
does take place, will be a fragile one at best. This could leave
the door open for more elections in the coming months, only adding
to the uncertainty in the region.
Beyond politics, in the truly important economies of Spain and
Italy, bond yields are once again soaring. Rates on 10 year notes
for both countries are both above 5.5%, levels that are bordering
on crisis proportions for both nations.
To top things off, both Italy and Spain are in recessions once
again leaving these troubled nations in a bind from a fiscal policy
perspective heading into the summer months (see Pain In The Spain
ETF Continues).
Thanks to these issues European equities have been under severe
pressure as of late. One of the more popular ETFs tracking the
broad European market—the iShares MSCI-EMU Index Fund
(EZU)—has lost nearly 7.8% in the past three month period
compared to a positive performance in the S&P 500 during the
same time frame.
Even more troubling is that healthy European economies have also
seen slumping prices as of late in their markets. The most popular
ETF tracking Germany—EWG—(which I own for my
personal portfolio) has lost 4.3% in the past quarter while the
Netherlands fund—EWN—has lost about 2.8% too.
Yet, when one compares these performances to Italian or Spanish
securities, the aforementioned funds look like safe havens. ETFs
focused on Spain have fallen by over 20% in the past quarter while
Italian funds have slid by over 15%, demonstrating just how bad the
sentiment has become about the new trouble spots in the region
(read Is The Italy ETF Next?).
As bad as things are, one has to believe that some solid values
are beginning to develop across the area as lower prices make PE
multiples and dividend yields more attractive. While one can
certainly argue that the banking sector should still be avoided in
Europe, one has to wonder if other sectors deserve the rough patch
that they have received in this time frame.
For example, French energy giant Total (TOT)
currently has an impressive dividend of over 7% with a forward PE
below 6.5. Meanwhile, German conglomerate Siemens
(SI) has a 3.25% yield and a forward PE below 11,
suggesting that decent values can be had in some of the top names
across the region, possibly implying that the sell-off has been
overdone in some cases.
The question now is; when is it time to get into these
names? Should investors buy up these large caps—or broad European
markets-- on hopes of a turnaround or continue to stay away for
fear of more losses?
While the situation is certainly troubling right now, gains
could be big if the market turns around, as we saw earlier this
year or after the end of our own crisis a few years ago. After all,
as was once said ‘buy when there’s blood in the streets, even if
the blood is your own’
Let us know what you think in the comments below!
SIEMENS AG-ADR (SI): Free Stock Analysis Report
TOTAL FINA SA (TOT): Free Stock Analysis Report
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