European Stocks Are Still on Sale. Where to Shop Now.
Nobody goes there anymore, it’s too crowded. So said that late, great philosopher, Yogi Berra.
Case in point: Europe. And it isn’t just Barcelona, where locals protested the hordes of tourists last summer by spraying them with water guns.
Some contrarian-minded investors have rushed into European stock markets in recent months, notwithstanding the persistently sluggish economies on the continent, resulting in strong gains in those bourses. Most likely, they were drawn to Europe by the equities’ extreme undervaluation after longtime laggard returns. On that score, the MSCI EMU index of large- and mid-cap European stocks trades for about 14 times expected earnings for the next 12 months, less than two-thirds the 22 times forward price/earnings multiple on the S&P 500 index.
Many of these investment “tourists” now find they have too much company and are taking their winnings and going home. But more experienced global investors can still find compelling values among individual European stocks rather than the broad exchange-traded funds that first attracted the tourists.
For all the talk of American exceptionalism, European stocks have outpaced U.S. stock indexes of late, and that’s despite the dominance of the big technology names among the latter. Among major ETFs of the sort that would populate Barron’s readers’ portfolios, the Vanguard FTSE Europe ETF (ticker: VGK) has returned 9.96% in 2025 through Wednesday, according to Morningstar data, better than twice the 4.61% year-to-date return of the Vanguard S&P 500 VETF (VOO). The iShares MSCI Germany EWG +0.19%
ETF (EWG) has returned an even greater 13.32% so far this year.
Bank of America’s latest survey of fund managers, released this past week, found that 12% of respondents were overweight European stocks, the highest percentage of accounts since last June. While relatively low, that still represented a big swing from 36% having been underweight Europe just two months earlier, as bargain hunters were attracted to the vastly cheaper valuations of European equities compared with the Magnificent Seven stocks that dominate the U.S. market.
That investors would venture to Europe might seem counterintuitive, especially since Germany, the continent’s largest economy, is facing its third year of recession and has a crucial election ahead this Sunday. Still, the DAX hit a record this past Tuesday, and was up 28.5% from a year ago at Thursday’s close.