5 Ways to Profit from Europe's Renaissance
In case you missed it, investors have declared victory in Europe. So if Europe's back and better than ever, how can you profit from it?
Below, I'll show you five different ways to play a European recovery. But first, let's take a look at the latest events on the continent and get a sense of where things are likely to go from here.
The combination of a semi-coerced 50% "voluntary" writedown on Greek bonds with approval for massive leverage within Europe's answer to the U.S. stimulus package three years ago sent stock markets soaring last week. In addition, by providing roughly $150 billion to recapitalize banks, the eurozone hopes to avoid the worst of what the U.S. experienced during its market meltdown in 2008 and early 2009.
Of course, not everyone is convinced that all these steps will actually solve Europe's problems. But whether you believe in the Euro-bailout or remain skeptical, one thing seems clear: Europe has thus far found the will to fight for its economic stability by any means necessary. And like those who fought the combined might of the Federal Reserve and the U.S. government in early 2009 by remaining bearish, you could easily end up missing a big rally in European stocks if you stay on the sidelines.
How to win
So if Europe is truly on the road to recovery, you need to know which investments will best let you take advantage of the situation. Here are five broad ways to make the most from Europe:
1. The easy way: European stock ETFs
Exchange-traded funds make it easy to play a wide variety of niche investments, and Europe is no exception. For instance, the Vanguard MSCI Europe ETF holds stocks from countries throughout the EU, including both economically strong countries like Germany and France as well as weaker ones such as Greece, Ireland, and Spain.
If you want more focused exposure, country-specific ETFs let you narrow your focus even more. For instance, iShares MSCI Germany (NYS: EWG) and iShares MSCI Austria (NYS: EWO) both give you a taste of European exposure but own completely different stocks. With a wide array of countries to choose from, you can pick whichever one you think has the best prospects.
2. The risky play: high-volatility stocks
With Europe's future in question, some stocks have a lot more to lose than others. For banks in the areas that the crisis has most affected, including National Bank of Greece (NYS: NBG) , Bank of Ireland (NYS: IRE) , and Banco Santander (NYS: STD) , a recovery could mean a huge bounce for beaten-down share prices. The same goes for stocks such as telecom giant Telefonica (NYS: TEF) , which has seen its stock punished for its Spanish home despite having big overseas operations in booming Latin America.
3. The money play: currencies
In addition to rising stock markets, we've seen a huge bounce in the value of the euro against the dollar since last week's announcement. Shareholders in the CurrencyShares Euro Trust have reaped the benefits, and as the survival of European economic union looks more likely, the dollar's dangers should reassert themselves and push investors back toward the euro.
4. U.S. companies with European exposure
Some investors shied away from U.S. stocks that did a lot of business in Europe when the crisis first hit. But now, shares of companies that get a big portion of their sales in Europe, including Philip Morris International (NYS: PM) , look even stronger than they did before. Look for them to bounce back if Europe's former headwinds turn into tailwinds.
The threat of a European crisis has stoked fears of a new global recession, which in turn has hurt commodity markets. But with Europe solidly back in the picture, investors should once again see the value of physical things over paper money -- especially to the extent that European monetary policy ends up creating the same printing-press mentality that has gripped the U.S. markets for three years now.
Start moving now
Europe's woes aren't anywhere close to having disappeared entirely. But with the real possibility of a big move forward for markets on the Continent, you need to prepare for the potential impact of a new European boom. If you can beat the crowd, you'll be much better positioned to profit from Europe's next renaissance.
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At the time this article was published Fool contributor Dan Caplinger enjoys a good renaissance. He owns shares of Vanguard European ETF. The Motley Fool owns shares of Philip Morris International and Telefonica. Motley Fool newsletter services have recommended buying shares of Philip Morris International and creating a bear put spread position in CurrencyShares Euro. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy works around the world.