Now looks like a very good time to buy European stocks. Many European nations, including France, the U.K., Italy and Germany, have recently abandoned lockdowns as a means of fighting the novel coronavirus. On top of that, Europe seems poised to invest a great deal in renewable energy.
European stocks have much lower average valuations than their American counterparts, and EU governments have done a very good job of supporting the bloc’s businesses through bank loans and government backstops. Realizing the strength of the region, investors recently bid its stocks to record levels.
The EU cumulatively plans to spend $500 billion on “green stimulus,” Bloomberg reported. By primarily stimulating private-sector spending, the proposed green stimulus may really provide huge economic boosts, unlike many other government spending initiatives.
Private companies and individuals tend to spend money much more quickly than governments, while firms usually hire people much faster than governments.
I believe that private companies tend to give more high-paying jobs to people who would otherwise be unemployed or receiving very low wages.
Europe’s banks have lent out a great deal of money to small businesses and governments. After the 2008 financial crisis, the economies of China, the U.K. and the EU incentivized their banks to lend money to businesses. China and the UK enjoyed strong economic recoveries.
For those who want exposure to Europe’s favorable macro trends, three of the best European stocks to buy are:
European Stocks to Buy: NXP Semiconductors (NXPI)
Netherlands-based NXP Semiconductors is benefiting from strong demand for its chips, particularly from automakers.
Its revenue from those firms soared 87% year-over-year in the second quarter. Overall, NXP’s Q2 sales jumped 42% YOY and 3% versus Q1. Its free cash flow came in at $486 million.
Going forward, the chipmaker should continue to be boosted by the increased use of chips in vehicles. One of the leading suppliers of battery management systems (BMS) for electric vehicles, NXP should be meaningfully helped by the proliferation of EVs in Europe and elsewhere.
In June, The Street reported that one of the world’s leading EV makers, Volkswagen, utilizes NXP’s BMS.
Trading at a market capitalization of $57 billion, NXPI stock, which has more than tripled since the end of 2018, likely has much more room to climb.
BNP Paribas (BNPQY)
The bank should benefit from the reopening of its home country’s economy, along with the EU’s green stimulus package and the economic reforms of French President Emmanuel Macron.
I expect the European economy to be boosted by the continent’s efforts to boost bank loans and financially back businesses and lenders.
The economic rebound should help the continent’s banks to post better results as European businesses take out and repay more loans and European consumers, boosted by growing businesses, spend more money.
BNP Paribas’ net income jumped 26.6% YOY to 2.9 billion EUR in Q2, and its revenue rose nearly 1% YOY, driven by a 9.5% top-line gain by its retail banking unit. BNP’s loans climbed 4% YOY.
The bank’s forward price-earnings ratio is just 8.6.
European Stocks to Buy: Volkswagen (VWAGY)
Benefiting from its very strong EV lineup, Volkswagen’s Q2 EPS came in at 9.7 EUR, as its sales soared 64% YOY to 67.3 billion EUR. In the first two quarters of the year, the automaker’s net cash flow came in at an impressive 10.2 billion EUR.
In the first four months of 2021, Volkswagen had the fourth, seventh and 10th best-selling EV models in the world’s largest EV market, China. In the U.S., Volkswagen’s vehicle unit sales surged 72% YOY during the same period.
In the first half of 2021, Volkswagen sold nearly 171,000 vehicles powered completely by batteries. That represented a very impressive 165% YOY increase.
After the EU proposed banning the sale of conventional, internal combustion engine (ICE) vehicles in 2035, Volkswagen a leading seller of EVs, should benefit meaningfully over the long run from the bloc’s efforts to eliminate ICE vehicles.
Also likely to help Volkswagen’s EV sales is the bloc’s proposal to force countries to build EV “charging stations no more than 60 kilometers (37.3 miles) apart on major roads by 2025.”
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, Plug Power and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.