Ken Fisher: Buy Europe now

Europe's underrated expansion

Mario Draghi is starting to cheer the eurozone economy, recently saying last year's "fragile and uneven recovery" was finally "solid and broad." One wonders where he's been the past 16 quarters. This isn't a mere recovery, it's a four-year growth streak. Output passed its 2008 peak two years ago. As more investors fathom this solid expansion, their warming animal spirits will power eurozone stocks higher.

I've written often of Europe's falling political uncertainty and the magic that should happen as the fog clears and investors can better see reality. This growth is what they'll see! Not just numbers, but everyday hustle and bustle.

Full restaurants, humming shops, busy loan officers at banks, construction galore, trains full of eager workers, trucks carrying goods and raw materials, tons of new projects on their desk at work. They'll feel the expansion in their bones, fathom enduring earnings, and bid stocks up.

None of this activity is new. The composite Purchasing Managers' Index (PMI) - hogging headlines now at six-year highs - topped 50 every month since July 2013, signaling uninterrupted expansion. Folks simply couldn't see it through the uncertainty fog. Too many worries about banks, negative rates, euroskeptic politicians and all the rest. Too much nattering negativity from central bankers and finance ministers.

Good news did make headlines, but it was couched as temporary or even bad, since it could mean the end of ECB stimulus. Americans, having already shaken this pessimism of disbelief, were more confident and bid US stocks higher but wouldn't touch Europe. Hence, the US outperformed four straight years.

But markets move most on the gap between reality and expectations, Europe's gap swamps America's. All the skepticism lingering in Europe's marketplace creates remarkable room for growth to surprise. Citigroup tracks this with its Economic Surprise Indexes, which measure whether economic results top or trail expectations.

The eurozone surprise index is at 65.4, signaling consistent, big positive surprise. America is growing nicely too, but has higher expectations. Its surprise index is -37.6 - growth is missing expectations more often than not. US stocks should still do fine - in a global bull market, a rising tide lifts all boats - but this isn't a recipe for outperformance

Meanwhile, all signs point to continued happy surprise in Europe. While America's yield curve flattened year-to-date, most eurozone curves steepened. US loan growth is tapering, while Europe's is speeding. Credit standards are tightening in America but loosening in Europe. Eurozone money supply (M3) is outgrowing America's broad M4 money supply - 5.3% y/y vs. America's 4.0% in March. The Conference Board's eurozone Leading Economic Index rose 0.7% m/m in March, capping a 3.3% rise since September and topping US LEI's 2.4%.

The more Europeans see and feel this growth, the more they'll pay for stocks. Buy Europe now - Germany, France, Netherlands, Spain, even Italy -and sit back while others bid your shares up. Here are two to consider:

Why do people still hate eurozone banks? They've weathered negative rates and quantitative easing and rebuilt balance sheets, and they're lending lots. I love buying stuff people hate for no good reason, and Denmark's Danske Bank stands ready to soar as uncertainty falls and folks come crawling back to Financials. You should also fall in love with its above-average loan growth, capital markets exposure and dominance in high-growth Scandinavia. With shares trading at 11 times my 2018 earnings estimate, you'll laugh all the way to the bank.

Rock me Amadeus! Madrid's Amadeus IT Group (AMS-SE), that is. The Spanish tech giant operates the world's largest global distribution system (GDS), letting travelers compare pricing across over 100 airlines. Airlines use it to automate mission-critical processes like inventory and flight route management. Investors punished it in 2015 when Lufthansa tried to bypass Amadeus's GDS, but that's all over now. Lufthansa didn't fly away, and you shouldn't either. With shares trading at 22 times my 2018 earnings estimate and euro travelers jetting off for summer fun, buy them before they reach cruising altitude.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Ken Fisher has been regularly featured in the financial media for over 30 years and was the pioneer of the Price-to-Sales ratio as a tool for investment analysis. Since 1979, Fisher Investments and its subsidiaries have provided customised guidance to institutional and individual investors. For more information on Ken Fisher and Fisher Investments UK please visit www.fisherinvestments.co.uk.