This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Greece Bounces Up From the Bottom

NEW YORK (TheStreet) -- With U.S. markets hitting record highs, the S&P 500 now commands a price-earnings ratio of 19.7. Even bulls admit that plenty of stocks are no longer in the bargain basement. Many forecasters say that the pricey S&P can only produce single-digit returns in coming years. To get outsized results, investors may have to look to Europe and the emerging markets where stocks are still unloved.

To spot cut-rate choices, screened for the country ETFs with the lowest price/earnings ratios. The cheapest by far was Global X FTSE Greece 20 (GREK) with a P/E of 1. "You can't help but be somewhat amazed at the price," says Paul Baiocchi, an analyst for

Baiocchi concedes that any investment in Greece is risky, but he says that the rock-bottom price should intrigue aggressive investors. Individual stocks only reach such low multiples when they are on the verge of going out of business. That cannot happen to an entire country. In fact, the picture in Greece is improving -- and investors are starting to recognize the change. During the past year, the Greek ETF returned 39.8%, according to Morningstar.

The rally has been triggered by a variety of signs that the country is hitting bottom. In August, the Greek unemployment rate was 27.3%. While that figure was abysmal, it was down from 27.5% in May. In the September quarter, the Greek GDP declined 3%, compared to a drop of 3.7% in the previous quarter. Now the European Commission predicts that the GDP will grow 0.6% in 2014. The International Monetary Fund estimates that the countrys current account deficit will shrink to a healthy 0.8% of GDP this year, down from 15% in 2008. The economy is being boosted by tourism revenue, which grew 13.7% in the first eight months of the year.

Must Read: The Future of the ETF Industry and Why It Matters to You

In some ways the Greek story today resembles the outlook for emerging markets a decade ago. At the time, markets in Asia and Latin America were just recovering from years of troubles. The collapse of the Mexican peso had been followed by a financial meltdown in Southeast Asia. Investors shunned emerging markets mutual funds, which had lost a total of 37% in the five years ended in October 2002.

While shareholders were withdrawing from emerging markets, governments in countries such as Brazil and Thailand were tightening their belts and reforming economies. That set the stage for one of the greatest rallies in history. With investors embracing countries that promised rapid growth, emerging markets funds returned 402% in the five years ended October 2007.

While the Greek rebound may not prove so dramatic, there is reason to believe that the rally can continue. With expectations so low, a little bit of good news could push up shares substantially.

Along with Greece, other country ETFs now sell at rock-bottom multiples. Among the cheapest is iShares MSCI Russia (ERUS), which has a multiple of 5.6. Russian stocks have long been unloved because of concerns that the government encourages cronyism instead of capitalism. But the ETF stands on relatively solid ground, holding most of its assets in big energy companies. Those have real assets that should be profitable as long as oil prices remain firm.

Another low-price ETF is Global X China Financials (CHIX), which has a P/E of 7. The portfolio includes major banks and insurers. Investors have fretted that the banks are burdened with bad loans. Some analysts predicted that the Chinese economy would sink sharply this year and pull down the banks. But in recent months, the growth rate of China has slowed without exposing new cracks in the financial industry. During the past year, the China financial ETF returned 23.6%. Investors have grown more confident as it appeared less likely that property markets would collapse.

At the time of publication, the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
ERUS $14.06 0.00%
GREK $7.85 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs