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Do The Silvio Shuffle: Italian Stocks To Watch As Economy Improves

James Dennin, Kapitall: Can Italian stocks rise above the antics of Silvio Berlusconi? This puts our own governmental woes in perspective.

The tabloid-friendly Italian former Prime Minister Silvio Berlusconi has been making the most of his time between scandals to pursue another run for the country's leadership. He had initially hinted he would withdraw his party's support of the current coalition government – which has only been in place for five months - a suggestion he finally rescinded this morning.

Read more from Kapitall Wire: Keep Calm and Invest On: 4 Stocks to Survive the Government Shutdown

The action suggests Berlusconi is slowly caving in to pressure to reduce his influence on Italian politics – where his larger than life personality has always been a focal point.  His most recent indictment was only three months ago, when Italy's Supreme Court upheld a number of fraud convictions and was threatening to remove him from his Senate seat. 

What does Italy's libidinous former head have to do with your portfolio? Well, a lot actually. Italy is the third largest economy in the Euro-zone. And it also has huge amounts of debt – over $2 trillion – that it will not be able to pay back without meaningful political reform.  

And doing that, according to the current Prime Minister Enrico Letta, will involve staying on its current political course long enough for the country to stabilize and unemployment to shrink. Right now he says that Italy looks "unfixable…messy" when compared to the rest of Europe, and that an economic recovery will come only once the country shrugs off years, if not decades, of political drama. 

Investing ideas

Italian stocks hit an instantaneous two-year-high on the news that Berlusconi would not return to power any time soon. The company's major banks were boosted, as were Italian sovereign bonds. The move can also have a huge impact on the European economy as a whole, as investors grow more confident in the prospect that Berlusconi's political machinations may draw to a close.

We decided to run a screen for healthy Italian stocks as the nation's recovery continues. We searched for Italy-based stocks trading on US exchanges with 'buy' ratings or better as an average analyst rating. We were left with only three companies on our list. 

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