Europe is not a friendly place for stocks right now – and we’re not just talking about Greece, which has been grabbing all the headlines. Just look at some of these Europe ETFs and their poor performance in 2010 thanks to the debt woes of euro zone nations. All ETF returns are year-to-date from January 1 to Thursday’s close:
- iShares MSCI Germany Index ETF (EWG), down -13.5%
- iShares MSCI Italy Index ETF (EWI), down -26.5%
- iShares MSCI Spain Index ETF (EWP), down -31.5%
- iShares MSCI France Index ETF (EWQ), down -19.2%
After those steep declines, however, it’s worth noting that there are actually some big opportunities presented by the current trouble in the euro zone. If you can find a company that is one the way up, then you can buy in at great valuations.
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Take Aixtron (AIXG), for instance. This German tech stock is involved with many semiconductor companies and electronics device manufacturers, making components are used in LCD displays, lighting, fiber optic communications, wireless telecom systems and a host of other applications. When you look at the booming growth of tech stocks so far in 2010 -- Apple (AAPL) stock is up 25% year to date, Intel (INTC) is up 7% even as the market has been sliding – things are looking up for this stock. And when you add into the mix that a weak euro makes AIXG exports cheaper to buy abroad due to currency exchange rates, it seems likely that strong demand will continue for this high tech stock’s products.
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This euro exchange rate phenomenon will also help boost the exports for stocks that are outside of tech. In fact, one stock I’m bullish on in particular is Italy furniture stock Natuzzi S.p.A. (NTZ). You might not think that many folks are in the market for a new leather sofa, but consumer spending is indeed firming up – and favorable exchange rates make Natuzzi goods cheaper for buyers in North America. Natuzzi also operates in Brazil in China, two booming emerging markets that are seeing their middle class gain purchasing power even while the euro makes NTZ furnishings more affordable. Consider that just recently Natuzzi earnings showed sales increased 14% over last year, with a 32% increase in America. The company posted earnings of $615,000 – not a big number, but a big turnaround over a loss of $20.4 million last year. If you’re looking to buy at the bottom, Natuzzi could be a great opportunity in Europe.
Lastly, another euro zone export stock worth a look is Koninklijke Philips Electronics (PHG), the parent company of Philips that is well known for its Blu-Ray disc players, electric shavers and other personal electronic devices. Philips is also a player in big pharma and healthcare, making high-tech devices for labs and hospitals. These big-ticket items – whether they be a new MRI machine or an HDTV – are made much more attractive by a weak euro and currency exchange rates. This ultimately will help PHG stock. In fact, the strength has already helped in recent months as the company has eked out a +3% gain year to date even as the broader market has slid and other European companies have flopped.
If you want to play the weak euro, you must be careful. But by looking at the numbers and seeking out export-driven businesses, you can find a few low-priced gems in Europe that may pay off for your investment portfolio.
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