Why Marc Faber the "Gloom and Doom" Man Is BUYING European Stocks
Stock-Markets / European Stock Markets Jun 13, 2012 - 01:32 AM GMTBy: DailyWealth
Investment guru Marc Faber is actually buying European stocks...
But wait a minute...
Isn't Greece about to explode? Isn't Spain next? Isn't the very existence of the euro in doubt?
Yes, yes, and yes.
But this is the type of situation that contrarian investors like Marc Faber look for.
As the longtime editor of the Gloom, Doom, and Boom Report, Marc Faber looks for moments like this. For the most part, Marc has been out of stocks in the world's major countries for many years – since well before the dot-com crash in 2000.
But just recently on Bloomberg TV, Marc said European stocks are relatively attractive right now...
Most European markets peaked out a year ago in May 2011 and are down very substantially. They are approaching the lows or exceeding the lows of 2009.
So in Europe, what you have are many shares of good-quality companies that are yielding 5% to 7%.
If you look 10 years out... if you buy a 10-year U.S. Treasury at a yield of 1.6% [today], that is the maximum you will earn. Whereas companies that have dividend yields of 4% to 7% I think will provide you with higher returns.
We have record-low interest rates on cash. You're not earning anything in some countries. So I'm saying [European stocks] are relatively attractive compared to cash and to bonds.
It might seem foolish to step up and buy European stocks when Europe is so hated right now. But the opposite is true – this is the right time to consider it. European stocks are incredibly cheap.
In my True Wealth newsletter, we own Germany through the iShares MSCI Germany Fund (EWG). Top holdings include Siemens, BASF, SAP, Bayer, Daimler (Mercedes), T-Mobile (Deutsche Telekom), and BMW.
These are major, worldwide businesses. They are not going away. Heck, if the euro weakens, it will benefit many of these companies: The majority of their costs are in euros, but a significant portion of their sales come in dollars.
Best of all, thanks to the European crisis, many of these companies are trading at record-cheap values.
You might see Europe in the news and think it's foolish to put your money to work there. But legendary contrarian Marc Faber is interested. And so am I.
When you look at what you're getting for your money (like the holdings in EWG), and the incredible values now that Europe has busted, it's worth it.
The one thing is, German stocks are still in a downtrend. This makes me uncomfortable. I'd much rather wait and miss the first 10% of the "up" move than to buy today and try to catch a falling knife.
In general, European stocks are near-record-cheap – trading for less than 10 times earnings, at a discount to book value, and paying 4%-plus dividends. Today may not be the exact day to "back up the truck" and buy... but that day is close.
Don't fear German stocks. Get ready to buy them very soon...
Good investing,
Steve
The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.
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