as part of our
Get ready to stretch your contrarian muscles.
As you know, I've been on the hunt for undervalued investments
in what's becoming a slightly overvalued world.
And I just found such an opportunity.
It's historic, too, since it could be another 30 years (or more)
before we get an opportunity to buy this cheaply again. But pulling
the trigger is going to require some
So let's see if you've got what it takes. (FYI - Warren Buffett
Dumpster Diving in the Eurozone
Lingering financial turmoil. Social unrest. And an economic
rebound that seems a long,
That (still) pretty much sums up the conditions in Europe.
Yet now could be one of the best times - ever - to start
scooping up the companies that are largely responsible for the
region's debt crisis: banks.
I know. The thought probably repulses you. However, as Daniel
Hemmant at BNP Paribas Investment Partners recently told CNBC,
European bank stocks haven't been this cheap in 30 years.
He's not exaggerating, either.
Since 1987 (when the first episode of "The Simpsons" aired), the
average price-to-book (P/B) ratio for European bank stocks has
clocked in at 1.87.
Today, they're trading at an average P/B ratio of 0.78 - a
staggering 58% discount to the long-term average. That's based on
the STOXX Europe 600 Banks Index, which is a diversified mix of 46
of Europe's banks, including most of the largest ones.
What's more, these bank stocks aren't simply dirt cheap in
relation to their historical valuations. They're cheap relative to
other popular investments right now, too. Namely, U.S. bank stocks,
Chinese stocks and Japanese stocks.
Take a look:
Now, as far as investing, we have two ways to capitalize on the
We can either scoop up individual banks that are trading at even
steeper discounts than the average - like
Credit Suisse Group AG
Deutsche Bank AG
Or we can opt for a more diversified approach…
Specifically, buying a low-cost exchange-traded fund with
significant exposure (more than 50%) to European banks - like the
iShares MSCI Europe Financials ETF
Follow Buffett, Not the Crowd
In the end, if investing is all about buying on the cheap, it
doesn't get much better than this. So what are investors waiting
Well, most want conditions to improve dramatically in Europe
before they put any hard-earned capital on the line. Essentially,
they're waiting for an "all clear" signal before buying. But that's
a costly mistake.
Just like we witnessed with residential real estate investments,
the profits start piling up when conditions move from bad to "less
bad." And by the time conditions get back to normal, it's too
Or as Hemmant says, "Usually the right time to buy cyclical
stocks is at the bottom [of the] cycle… It's never a comfortable
thing to do."
He's right. Being a contrarian is never
. But it is
And the current opportunity in European banks won't be an
"We are somewhere around the bottom of the cycle [for European
banks]," says Hemmant. I concur.
And that means it's time to step up and buy - or be sorry we
didn't later on.
Still scared? Maybe this will help you overcome any anxiety
related to buying European stocks…
Warren Buffett's doing it! And if it's good enough for him, it
should be good enough for us, right?
He recently told CNBC that he's been buying "some European
stocks and companies in the past year."
What's more, he echoed the same sentiments I'm sharing today,
saying, "We bought stocks when the United States was in trouble, in
2008… It wasn't because the news was good; it was because the
prices were good. And if you believe that Europe is going to be
around, which it certainly is… then you actually look at troubles
as possibly being an opportunity to buy."
Bottom line: The news coming out of European banks isn't good.
Yet. But the prices are. So hurry up and buy, before it's too