Europe a better place to visit than invest, advisors say
European stocks are cheap relative to US equities from a valuation perspective. And they got even cheaper recently, dipping after French President Emmanuel Macron called for a snap election amid the rise of the National Rally party’s Marine Le Pen.
All this begs the question as to whether American tourists now streaming into Europe on the back of the strong US dollar should consider bringing back stocks from the continent along with their souvenirs.
Valuations are attractive in Europe, as they have been for quite some time, at a price-to-earnings ratio (P/E) of 13.5. That’s a healthy 36 percent below the P/E of the S&P 500 and, as Adam Turnquist, chief technical strategist for LPL Financial, points out, a full 5 percent below its 10-year average.
“As Europe’s economic activity potentially picks up as rate cuts take hold and inflation potentially eases further, these valuations could expand. An end to the war in Ukraine and the start of the rebuilding there would help, as would greater political stability,” Turnquist said.
Another potential bullish case for European equities is earnings growth, which Turnquist sees as respectable and improving. That still lags the US, which is getting a boost from its world-beating – and very richly valued – tech companies.
As for the continent’s rising political uncertainty, Turnquist sees the rise in right wing nationalism as less of an existential threat to the Eurozone as the European debt crisis was in the early 2010s.
Nevertheless, despite the attractive valuation and greater political stability than the market is implying, Turnquist does not favor overweighting European stocks.
“Investing in Europe does make sense,” he said. “But with slower earnings growth, less exposure to
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