It’s no secret that, compared to the United States, Europe has been a little slow to recover from the pandemic. They’ve had some bigger waves and newer lockdowns, and they’ve just handled the pandemic differently than the US. So, their economy has not been as quick to recover.
They are also far more economically dependent on China than the US, and they have been directly impacted by the recent Chinese economic slowdown. And to pile it on, natural gas prices are a catastrophe in Europe, as they are unfortunately almost totally dependent on Russia. That’s really not a good position to be in.
Natural gas prices have risen dramatically across Europe, and it doesn’t look like it’s going to get any better. That’s really slowing the pace of economic recovery over there. But eventually, it’s going to recover.
The European Central Bank and the Bank of England are doing a lot of the same things the Federal Reserve is doing in order to stimulate the economy and promote job growth. So, I am highly confident that they will succeed, and Europe will get back on a growth path.
Now, in terms of valuations, the US is the world leader, as our stocks are ridiculously overvalued. But when you look at Europe, that’s not really the case. They’re trading at dramatic discounts to the US on based on market cap to GDP levels. The same thing goes for the Shiller Cyclically Adjusted Price/Earnings (CAPE) Ratio.
Europe is, in my eyes, a bit below fairly valued but they will eventually be on their way to becoming overvalued just like the US. And leading the way higher are going to be those stocks that right now are showing smooth-up-and-to-the-right momentum.
So, I’ve got for you today a couple of stocks that should lead European markets higher over the next 12 months.
First up is Equinor ASA (EQNR), which is a Norwegian oil and gas company. They are one of the few sources for natural gas that Europe has aside from Russia, and they just announced that they are going to dramatically increase their shipments to Europe.
It’s not going to be enough to impact the rising price of natural gas, though. They are going to be shipping it out at a very high price, which is going to mean a ton of free cash flow coming back to the company.
But there’s a lot more to this story than oil and gas. Remember, Norway is a leader in renewable energies, and Equinor has really been pushing to develop its portfolio of renewable assets. They’re in solar and offshore wind in a very big way, and they’re exploring every possible resource when it comes to generating energy.
This is kind of the perfect energy situation in my mind, as you’ve got traditional oil and gas assets that will provide a lot of cash flow that can then be used to build up the renewable portfolio that is going to be the energy source of the future. And that’s exactly what they’ve been doing.
They also pay a nice dividend. They just wrapped up a 75 million-share buyback, and they are doing another buyback as I write this. These are all things that I like to see companies do with cash flow, and that’s also been attracting the kind of institutional buying pressure that can push the stock price much higher.
I don’t think these cash flows are going to stop here. Oil and gas prices are going to remain steady to higher, they’re going to continue to have a very profitable and growing renewables business and the stock is not overvalued by any stretch of the imagination. I think Equinor is going to be one of those stocks that will lead European markets higher as they play catch-up with the US markets.
International Game Technology PLC
My second pick to lead European markets higher is International Game Technology PLC (IGT), which is a UK-based company in the gambling technology business.
That means slot machines, but from a growth perspective it also means sports betting terminals and kiosks. Sports betting is one of the fastest-growing businesses in the world, and IGT is going to become a leader.
They’ve already got a substantial presence, they’re winning new contracts for kiosks and terminals and online gambling platforms each and every day, but they’ve also got the slot machine business that’s producing the cash flow to grow this much more exciting, digital gaming side of the business.
This is going to be a very fast-growing company, and analysts expect them to grow earnings at about 30% a year for the next five years. That’s spectacular growth, and it is creating smooth-up-and-to-the-right momentum for the stock.
Institutions are coming into the stock, and they see the same thing that I see… A gambling technology company that’s going to be a leader in the fast-growing sports betting markets. So, they want in, and once they’re in, they’re going to stay in until the company’s earnings begin to slow, which is going to be several years from now.
I think this stock will also be a growth leader that helps pull European markets higher over the next few years.
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