3 ‘Goldilocks’ Stocks to Buy as Europe’s Growth Accelerates

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stocks to buy - 3 ‘Goldilocks’ Stocks to Buy as Europe’s Growth Accelerates

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If the data is any indication, Europe’s economy has turned the corner and is accelerating. That means investors should look for stocks to buy that will enable them to exploit this clear trend. At the same time, political and currency risks make buying pure play European stocks somewhat risky.

3 'Goldilocks' Stocks to Buy as Europe’s Growth Accelerates

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On Feb. 21, Markit reported that its flash purchasing managers’ index for the Eurozone, which measures economic growth, came in at 56, representing its highest level in nearly six years.

Moreover, job creation metrics reached a nine-and-a-half-year high, Markit stated. And the Eurozone’s two largest economies — France and Germany — had PMIs of 56.2 and 56.1, representing levels above the Eurozone average.

Despite the Eurozone’s strong economic rebound, it may not be a good idea to buy stocks of companies that get the vast majority of their revenue from the continent. That’s because the Eurozone does still face considerable political and currency risks in the near to medium term.

Specifically, there is a chance that France could look to exit the Eurozone (although no poll predicts that the French presidential candidate advocating an exit will win). Furthermore, German elections are coming up, while the euro could drop significantly against the dollar as the Federal Reserve raises U.S. interest rates and the European Central Bank’s monetary policy remains loose.

But American multinationals with high exposure to Europe should be at least somewhat insulated from those headline risks, given the fact that they are not actually based in Europe and that they obtain the majority of their revenue in currencies other than the euro. These should be looked at as “Goldilocks” picks that enable investors to benefit from the European recovery while avoiding the huge risk that buying the shares of European pure plays would present.

Stocks to Buy for Europe: McDonald’s (MCD)

Stocks to Buy for Europe: McDonald’s (MCD)

McDonald’s Corporation (NYSE:MCD) obtained 40% of its revenue from Europe, USA Today reported in November 2015, citing data from S&P. MCD stock should benefit from improving employment trends in the Eurozone, where the official unemployment rate was 9.6% in December. As many more Europeans snagjobs, they will be able to visit McDonald’s much more often.

During McDonald’s fourth-quarter results conference call in January, McDonald’s CEO Steve Easterbrook made optimistic statements about the company’s outlook in the Eurozone’s two largest markets, Germany and France.

In Germany, actions that MCD has taken are “resonating” with consumers, while “France is seeing initial signs of recovery,” Easterbrook stated.

That bodes well for MCD stock holders.

Stocks to Buy for Europe: Carnival (CCL)

Stocks to Buy for Europe: Carnival (CCL)

Source: Via Carnival

According to USA TodayCarnival Corp (NYSE:CCLobtained around 36% of its revenue from Europe. Of course, as Europe’s economy improves, many more of the continent’s consumers will be able to take cruises, making CCL a good stock to buy now.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been SMCI, INTC, and MGM. You can reach him on Stocktwits at @larryramer.

That trend already appears to be taking hold, as the company’s CEO, Arnold Donald, said during the company’s fourth-quarter results conference call in December that demand for European cruises was “ well ahead of the prior year at nicely higher prices.”

Stocks to Buy for Europe: Ford (F)

Stocks to Buy for Europe: Ford (F)

Another company already benefiting from the European economic rebound is Ford Motor Company (NYSE:F). The automaker has less European exposure than McDonald’s and Carnival, as $28.5 billion of its revenue in fiscal 2016 came from the region, out of $141.5 billion overall.

Last quarter, the company’s pre-tax profit and operating margin on the continent surged more than 25% versus the same year earlier. Moreover, with only 7.7% market share in Europe, Ford has a great deal of room to grow there. The automaker did warn that it expects its profit from the continent to drop in 2017, primarily because of a decline in the value of the British pound and its investments in the launch of two new vehicles. However, investors will probably look past those one-time issues if the company’s European revenue and market share expand significantly.

With Europe’s economic growth accelerating, investors should look to take advantage of that trend. McDonald’s, Carnival and Ford are good stocks to buy for investors who want to exploit European growth, but are a bit wary of the currency and political risks posed by the continent.

As of this writing, Larry Ramer did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/02/stocks-to-buy-as-europe-growth-accelerates/.

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