European stocks are hated...
Professional investors are betting against Europe at a more extreme level than we've ever seen before, based on one measure.
And as I shared yesterday, that tells us a major rally in European stocks is about to begin.
Today, I'll share why this won't be a flash in the pan. Instead, it'll likely be a multiyear boom that dramatically outperforms what we see in the U.S.
Let me explain...
Sentiment tells us a European boom is possible. And low prices tell us how high the market could rally.
Our upside from here is huge... because European stocks are dirt-cheap right now.
We can see this in a handful of ways. Let's start with the price-to-book (P/B) ratio...
This is a simple valuation tool that tells you how cheap or expensive a stock is relative to its assets. A high P/B ratio signals stocks are expensive. And a relatively low P/B ratio shows stocks are cheap.
Today, European stocks are trading for a P/B ratio of 1.6. That's dirt-cheap compared to the P/B ratio for U.S. stocks... They trade at a P/B ratio of 3.4 right now.
Said another way, European stocks trade for less than half the price of their U.S. counterparts.
But it isn't just one measure that shows how cheap European stocks are right now...
We can also see today's value opportunity through the price-to-sales (P/S) ratio. It's another easy way to know if you're paying too much for a stock.
Right now, European stocks trade for a P/S ratio of 1.1. That's a 50% discount to the U.S. market, which trades at a P/S ratio of 2.2 today.
European stocks are a great value any way you slice it. And based on history, we can expect them to outperform their U.S. counterparts over the next decade.
For example, we saw a similar situation play out in the '90s...
Starting in 1990, U.S. stocks crushed European stocks for six out of seven years. That's more than half a decade of outperformance. But at the end of 1996, the story flipped...
European stocks turned out to be the major winner over the next four years, returning more than 200%. And remember, the U.S. saw a fantastic bull market from 1996 to 2000.
It happened again at the start of the 21st century. European stocks underperformed from 2001 through 2004. But then, over the next three years, European stocks crushed their U.S. counterparts. Take a look...
European stocks more than doubled the return of the S&P 500 during that span. That's amazing outperformance. And it's what we can hope for again this time...
You see, European stocks have underperformed U.S. stocks in four of the past five years. And history says the story will soon flip on its head.
The current setup in European stocks offers a great opportunity to profit...
As I showed yesterday, investors are betting on lower European stock prices at extreme levels. They believe these stocks will continue heading lower. And that means the opposite will likely occur. Plus, European stocks are a fantastic value right now compared to U.S. stocks.
That's why your money is better off outside the U.S. over the next decade...
After years of underperformance, European stocks will likely crush their U.S. counterparts in the years to come. Triple-digit gains are possible as this situation plays out.
One way to take advantage of this opportunity today is through the SPDR EURO STOXX 50 Fund (FEZ). This exchange-traded fund tracks the 50 largest stocks in Europe.
By buying shares of FEZ, you're buying the blue chips of European stocks. It's a simple, one-click way to take advantage of the huge opportunity setting up in Europe. I urge you to check it out.
Good investing,
Chris Igou
Further Reading
As Chris says, investors may be better off putting their money to work outside the U.S... at least over the next decade. Catch up on his full essay on Europe from yesterday's DailyWealth here: It's Time to Get Money Out of the U.S.
Investors around the globe are finally starting to pay attention to another foreign market... marking a major shift from last year, when fears dominated the news. And recently, a major investment bank even got on board. Get the full story right here.
As with Europe, there's plenty of opportunity to make money in Chinese stocks. And this Chinese property company is a fantastic value with solid upside potential...
THIS COMPANY'S SUCCESS POINTS TO A STRONG ECONOMY
Today's chart paints a promising picture of the global economy...
Longtime readers know we use a variety of sectors as economic bellwethers. Industries like manufacturing, shipping, and construction are economic hubs... They show that goods are changing hands, energy is flowing, infrastructure is developing – and overall, money is moving freely. That's the bullish picture we're getting from today's company...
Graco (GGG) is a $9 billion manufacturer of fluid-handling equipment used around the world. Don't confuse it with the Graco brand of baby gear – this Graco makes the paint-sprayers used on assembly lines and road-striping projects... the pumps that dispense chemicals and oil... and the valves and meters that keep these substances under control. The company had a record year in 2018, hitting nearly $1.7 billion in sales. And that's a good sign for the economy...
As you can see, shares have nearly doubled over the past three years, recently hitting a new all-time high. The world's companies are still eagerly investing in Graco's equipment... yet another indicator that the global economy is going strong...
