Not all investors are taking the Continent-wide crisis as a reason to flee Europe. Some money managers see it as a chance to go bargain hunting. One theory: The euro's slump, to a 4-year low against the U.S. dollar, will boost exporters and lift economies.
David G. Herro of Harris Associates, named the international fund manager of the decade this year by Morningstar (MORN), bought shares of Spain's Banco Santander (STD) in the past month. He added to his stake in Paris-based yogurt maker Groupe Danone (GDNNY), which posted its fastest quarterly sales growth in two years on Apr. 15. Howard F. Ward of the Gabelli funds, boosted his investment in Munich-based Siemens (SI).
"Global blue chips based in Europe are probably the most attractively valued equities today," says Herro, chief investment officer of international equities at Harris Associates, parent of the Oakmark mutual funds. Herro says he's scooping up shares that have fallen too far, too fast, and 8 of the top 10 holdings in his $5.3 billion Oakmark International Fund (OAKIX) were European stocks at the end of March. The fund returned 5.5 percent annually in the past five years, beating 86 percent of peers, Bloomberg data show. "Other people say, 'It's messy. I'm not going to go in there,' " Herro says. "But this is when you should go in."
The currency's fall should boost exporters, says David Darst, chief investment strategist at Morgan Stanley Smith Barney: "European stocks are a buying opportunity." Analysts lifted profit estimates for the next year for companies in the Euro Stoxx 50 index by 2.5 percent in April, the most since 2006. The index traded at 9.7 times forecast income on May 7. That was the cheapest since April 2009, before the index began a rally that sent it 35 percent higher in a year.
Credit Suisse (CS) earlier this month advised investors to favor European stocks in global holdings, citing low valuations and a weakening euro. Goldman Sachs (GS) strategists wrote in a report that European stocks are "down but not out" as profits increase in the region. UBS (UBS) and Deutsche Bank (DB) issued recommendations to increase investments in Germany, Europe's largest market, because shares in the country are more geared to global growth than to Europe's most-indebted economies.
Amid all that enthusiasm, some sounded a more cautious note. "I wouldn't jump in," says Robert Doll, vice-chairman and chief equity strategist at BlackRock (BLK), which manages more than $3 trillion. "I'd still rather invest in the U.S., where the recovery is stronger." Yet buying into uncertainty can be more profitable. "Europe has become very cheap, and the fall of the euro has made it more attractive," says Max King, a London-based investment strategist at Investec Asset Management, which oversees about $55 billion. "If you wait until all the concerns are resolved, then you'll always be buying at the peak."
The bottom line: Investing in Europe now is a bet that the debt crisis will be contained and that the weaker euro will help big exporters improve sales.