Europe's woes may be off the front page but the problems remain. Unrest in Spain, the questionable future of the Euro currency and rampant unemployment still plague the region. Regardless, European stock markets are starting to move higher and valuations are still cheap. It's a combination Reformed Broker Josh Brown finds irresistible.
"This is not a huge position in our portfolios," Brown explains in the attached clip, "we actually expect to be wrong in the short term but we have to start now; the valuations are just too compelling."
Even with a more than 4% rally in July, the benchmark FTSE 100 (^FTSE) is underperforming the S&P 500 (^GSPC) year-to-date and sports a much lower price-to-earnings multiple. All valuations are relative, and everything being equal, getting long the cheaper regions has proven to be a shrewd play for the patient.
Not that Brown is making a fundamental turnaround argument just yet. "I'm not saying Europe is going into boom times, we're all aware of what the issues are. But the equities are giving you an opportunity because of that."
He compares buying Europe today to buying U.S. stocks in 2008 and 2009. Again, he's preaching patience.
"This is not a trade that we expect to work out next month. We're happy to be wrong because we don't have a full position on yet," he explains. "This is how smart investors allocate capital with an intermediate to long-term time horizon. I'm not sure you'll be able to buy Europe at 10 or 11 times earnings ten years from now. In fact when the trade gets popular we hope to be trimming and selling into that."
Brown vows to come back to Breakout for abuse or a victory lap as the next leg of the European equity journey unfolds.
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