by The US is overvalued & The Eurozone is undervalued
Last week explained how high volatility had skewed some companies valuations. In this weeks article, we dive deeper into this theme, and we more specifically look at undervalued European Stocks and overvalued American Stocks.
One of the reasons why we have chosen to take a closer look at undervalued European markets is because these markets have underperformed American equities in the last few years. Granted, the European economy has not grown at the same rate as the US. However, with the high correlation in both economic conditions and equity prices, US will more likely get a steeper decline in prices, if a recession were to happen.
Another reason why we are looking at European stocks is the strong dollar. Investing in European stocks can act as a hedge to the strong dollar, and potentially increase the return in the Euro were to gain on the dollar.
In current uncertain economic conditions, we will look at companies with a history of stable income and profits. Companies that are in good financial health that might be slightly undervalued are in favor. The markets in the following countries will be the first we research: Austria; Greece; Italy; Spain; and, Turkey (in no particular order).
On the other side of the equation, certain American stocks have been experienced high growth since the last bear market. We will research for companies that fit a profile of high valuations with no particular results to back it up. These are the type of companies that will get hit hardest in downtrend markets. If the opportunity presents itself, we will short the stocks that we find overvalued.