With much of Europe headed for recession, there are good bargains to be had among depressed European stocks, says star money manager David Herro, who manages Oakmark International mutual fund.
It’s important to note first of all that not all of Europe is in bad shape, he tells Morningstar. “We see Northern Europe as being relatively healthy.”
Perhaps more importantly, “we judge businesses not by their country of domicile, but by where they make their money,” Herro says.
“Because we are concerned with cash flow streams over the long term, we believe short-term, macro-induced panic enables us to find and purchase good companies with global asset bases, global revenue, global cash flow, and global profits that just happen to have their headquarters in Europe.”
With forecasts of global economic growth centered around 3 to 4 percent for this year, companies with a worldwide focus can thrive, Herro says.
“Growth at or close to 4 percent bodes well for increases in corporate profitability. When one combines low valuations with economic growth, it is generally positive for stock prices.”
Herro’s favorite picks include Daimler (ticker: DAI) and Publicis Groupe (PUB).
Others are bullish on European stocks too. "We're at such an extreme [low] point [for European stocks] that just the absence of a major credit event would prompt people to reassess the market," Ian Scott, chief global strategist at Nomura Holdings, tells The Wall Street Journal.
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