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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

How to Profit From European Stimulus Expectations

NEW YORK (TheStreet) -- If you back the opinion of hedge fund manager David Tepper that Europe's Central Bank will have to ease soon, go for Austrian, Dutch or Italian stocks -- bonds have done their dash.

That's the message from fund managers, as voices grow louder on the prospect of more QE from the ECB in June or July. European Central Bank President Mario Draghi triggered fresh speculation on easing when he announced at its policy meeting this month that the "governing council is comfortable with acting next time," after economic projections are assessed in early June. Expectations were further fueled by reports this week that Germany's central bank would support any stimulus measures by the ECB, while individuals such as Tepper have warned about the risks of inaction.

"The ECB, they better ease in June," said Tepper, who runs the $20-billion Appaloosa Management firm, at a gathering of investors in Las Vegas this week. "I don't know how far behind the curve (the ECB is) but I think they're really, really far behind."

Even without stimulus, many fund managers point to better investment fundamentals in Europe -- where valuations are below U.S. markets and economic data continues to improve.

The consensus is that sovereign European bonds have already reacted to stimulus expectations, with the gap between Spanish and Italian bonds vs. German Bunds viewed as insufficient to warrant jumping in. "European equities are a better investment with Germany at the vanguard," Interactive Brokers chief market analyst Andrew Wilkinson said. "At some point, growth in the periphery will resume, so there's still value to be had there."

Any European stimulus is not expected to float all boats, given challenges some nations face, including the effects of the Russia-Ukraine crisis. As such, managers suggested a targeted approach. "In Europe some countries will do well, and others will be lukewarm -- it depends where the markets are starting from," said ClearPath Capital Partners chief investment officer Brendan Connaughton.

He advocated a core investment such as the MSCI EAFE, the iShares EAFE ETF, the MSCI Europe or the iShares Europe ETF. "If you are going to use a core and satellite approach, the MSCI EAFE (which is predominately Europe) might be a more risk adverse way, and then surround it with specific countries in Europe," the CIO said. "Don't play sectors within countries as that becomes a security bet rather than a macro bet."

At a country specific level, he likes the Netherlands, Austria and Italy -- nations where equity markets are trading below their 50-day moving averages. "Germany is the lynchpin for Europe, but it's trading at 2% above its 50-day moving average so (stimulus) is already priced in, but Italy is below its 50-day moving average so it's an entry point investors might find more attractive," Connaughton said. "Spain is 3.13% above (this level) and for year, its market is already up 9.5%."

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,979.13 +59.54 0.35%
S&P 500 1,986.51 +4.91 0.25%
NASDAQ 4,526.4820 -1.0320 -0.02%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs