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An Incredible Opportunity... in Europe

By Brett Eversole, analyst, True Wealth Systems
Tuesday, July 22, 2014

It's a tough time to be an investor in Europe...
 
Portugal's banking crisis is in full swing. And it's dragging European stocks down with it. Europe's blue-chip index – the Euro Stoxx 50 – is down 8% in the past month. Portugal's stock market fell 14% over the same period.
 
This fall has made already cheap European stocks even cheaper. But one country in particular stands out as the absolute best value. And while today is a scary time to buy, it could lead to big gains.
 
Let me explain...
 
I've personally been writing about Europe since early 2012. If you'd invested in European blue chips back then, you'd be sitting on 53% gains... more than the return on U.S. stocks over the same period.
 
European blue chips are still a great deal today... 16% cheaper than the U.S., based on forward earnings. But we can get even better value by putting our money in one of Europe's cheapest markets... Italy.
 
The table below shows exactly what I'm talking about. It compares Italy's stock market with Europe's other major stock markets. Take a look...
 
Next Year's Estimates
Index
Country
Price to
Earnings
Price to
Book
Price to
Cash Flow
Euro Stoxx 50
Eurozone
12.5
1.4
6.8
FTSE 100
London
13
1.8
8.9
CAC 40
France
13
1.4
7.8
DAX
Germany
12
1.5
7.3
IBEX 35
Spain
14
1.4
5.5
FTSE MIB
Italy
12.4
1
4.6
 
Italy's major market Index – the MIB – is cheaper than the rest of Europe, nearly across the board...
 
When you look at price-to-book value, Italy is 29% cheaper than Europe's blue-chip index. And it's more than 30% cheaper using price-to-cash flow.
 
Based on book value, Italian stocks would need to rise 40% just to reach the valuation of the Euro Stoxx 50. And remember, the Euro Stoxx 50 is much cheaper than the U.S.! So getting into Italy is buying the cheapest of the cheap...
 
Simply put, Italy is THE value investment of Europe's major stock markets. And our upside potential is huge.
 
The problem, of course, is that Italy's stock market is falling with the rest of Europe. As you can see in the chart below, the iShares MSCI Italy Fund (NYSE: EWI) has fallen 10% since early June.
 
 
It's never a good idea to try to "catch a falling knife." It's usually safer to wait for it to hit the ground and move higher. And even though Italy is an incredible value today, we need to be patient.
 
If you're interested in Europe's best value – Italy – wait for shares of EWI to move above $17.50. If that happens, it'll likely mean we're past the "danger zone" Europe is in today... and that Italy's multiyear bull market is back.
 
Investors in Italy should be in for big gains... Don't miss out.
 
Good investing,
 
Brett Eversole

P.S. The next S&A investor's conference takes place August 23 in Los Angeles. If you join us, you'll hear from Steve, Porter, and master speculator Doug Casey. We've also invited one of the greatest social and economic satirists of our day, P.J. O'Rourke.
 
Plus, we recently added a mystery speaker to our roster... In 2007, he was named to the "Time 100," the magazine's list of the 100 most influential people in the world. Last year, he was named among both Time's "Tech 40 – The Most Influential Minds in Technology" and Foreign Policy's "Top 100 Global Thinkers." Our mystery speaker agreed to demo one of his products – one of the hottest innovations around right now – live, on stage.
 
We still have a handful of "early bird" tickets left. To make sure you don't miss out, click here.



Further Reading:

Brian Hunt reminds readers that "when a great investor reads a headline like 'European stock markets crash'... he perks up." He knows that "a crisis situation is one of the few times you'll ever get to buy assets for bargain prices." Learn more in this must-read interview with Brian.
 
Europe might be the better deal today, but Steve Sjuggerud believes U.S. stocks still have room to run. He says "the best time to own U.S. stocks is only a few months away." Find out why right here.

Market Notes


DAN WROTE IT, DID YOU BUY IT?

Last week, we showed you how well the "Big Cheap Tech" trade is working. Today, we'll show you one of its main drivers.
 
Of all the "Big Cheap Tech" stocks we profiled in 2010, few were more out of favor than Microsoft. Critics said it was too big, too slow, and too exposed to the declining personal computer market to make for a compelling investment. Our friend and colleague Dan Ferris, editor of the outstanding Extreme Value letter, disagreed.
 
For years, Dan has pointed out that Microsoft was still growing, still producing huge cash flows, and paying one of the market's most reliable 3%-plus dividends. He was more adamant about Microsoft than anyone we know.
 
As you can see from the chart below, Dan was right on the money. In the past three years, Microsoft's share price has climbed from $24 to $44. In just the past week, shares struck a 14-year high. The Microsoft critics have been run over.
 

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