On Friday, U.S. equity markets faltered in the wake of a failed attempt by the Trump administration to push through a new healthcare law. Meanwhile, early private estimates showed that economic growth was nearing a six-month low. This is in keeping with what is becoming something of a trend -- a soft GDP reading for the year’s first quarter.  

Markets across Europe also felt the impact of events across the pond. However, in sharp contrast, estimates for the region’s economic growth closed in on its highest level in six years. Given that domestic markets could face uncertainty in the wake of Trump’s failure to push through crucial policy changes, investing in select European stocks looks like a prudent option at this point.

Eurozone Growth Nears 6-Year High

The latest reading of IHS Markit’s Flash PMI, considered to be an important indicator of the region’s economic prospects, closed in on its highest level in six years for the month of March. The metric increased from February’s reading of 56.0 to 56.7, the highest level experienced since Apr 2011. In doing so, it also exceeded most analyst estimates.

Additionally, flash readings for Germany and France, two of the region’s largest economies also exceeded estimates to hit near-six-year peaks. According to IHS Markit’s chief business economist, this reading implies that first quarter GDP has increased by 0.6% on a quarterly basis. Taken together, these would be the highest readings witnessed since 2011’s first quarter.

In contrast, March’s IHS Markit flash reading for the U.S. was disappointing. The metric declined from last month’s reading of 54.2 to 53.4, substantially lower than economists’ estimates of 54.8.

Could Upcoming Elections Spoil the Party?

Other indicators of economic growth are also increasing, which lends weight to the argument that the region’s economy is on a firm footing. An index of factory activity increased from 55.4 to 56.2 in March. Additionally, a key services index increased from 55.5 to 56.5. Each of these indicators are now at their highest levels in nearly six years and significantly above 50, which indicates expansion is taking place.

However, the region now faces crucial political challenges in the form of upcoming elections in major member countries. The rise of ultra-nationalistic sentiment is being viewed by many commentators as a major threat to the region’s economic prosperity.

But are these fears being overstated? In the Netherlands, the ruling People’s Party for Freedom and Democracy (VVD) won the recent parliamentary election by securing 33 seats in the House of Representatives. The VVD’s closest competitor, the Party of Freedom (PVV), secured around 20 seats in comparison. This result boosted sentiment, as PPV leader Geert Wilders had called for a Dutch referendum on the question of exiting the EU.

Meanwhile a recent poll in France shows that former banker and economy minister Emmanuel Macron is leading the presidential race with 29% votes. He is now well ahead of his immediate rival, National Front party leader Marine Le Pen, who has 19% of the votes. With voter sentiment moving toward Macron ahead of the much-awaited French presidential election starting on April 23, expectations of lower corporate and housing taxes are rising. Moreover, fears of France’s exit from the EU have subdued with Le Pen’s victory appearing unlikely. (Read: 3 Mutual Funds to Buy on Europe Elections & Economic Growth)

Our Choices

Fresh economic indicators provide conclusive evidence that the Eurozone’s economic situation has improved significantly. Also, the political situation is not as worrying as it seems at first glance and is unlikely to impede near-term growth. In contrast, the failure to push through a new healthcare law has led to questions about whether the new U.S. administration will be able to implement its economic agenda.

Adding European stocks to your portfolio looks like a smart option at this point. However, picking winning stocks may prove to be difficult.

This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score. 

ArcelorMittal (MT Quick QuoteMT - Free Report) is a Luxembourg-based steel and mining company.

ArcelorMittal has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 59.9% for the current year.  Its earnings estimate for the current year has improved by 2.5% over the last 30 days. The stock has returned 32.3% over the last six months, outperforming the Zacks Steel - Producers sector, which has gained 26.3% over the same period.

Telefonica S.A. (TEF Quick QuoteTEF - Free Report) is a Madrid, Spain-based provider of fixed-line telephone services, wireless communications, Internet access, video and data transmission services.

Telefonica has a Zacks Rank #1 and a VGM Score of A. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 13.50, lower than the industry average of 15.01. Its earnings estimate for the current year has improved by 10.6% over the last 30 days. The stock has returned 7.1% over the last six months, outperforming the Zacks Diversified Communication Services sector, which has lost 3.1% over the same period.

Unilever N.V. is a Netherlands-based consumer products company.

Unilever has a VGM Score of B. The company has expected earnings growth of 7.9% for the current year. Its earnings estimate for the current year has improved by 5.4% over the last 30 days. The stock has returned 8.1% over the last six months, outperforming the Zacks Soap And Cleaning Materials sector, which has gained 2.9% over the same period. The stock has a Zacks Rank #1(Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Telecom Italia S.p.A. is engaged principally in the communication sector and operates mainly in Europe, the Mediterranean Basin and South America. The company is based in Rome, Italy.

Telecom Italia has a Zacks Rank #2 (Buy) and a VGM Score of B. The company has expected earnings growth of 18% for the current year. The stock has a P/E (F1) of 9.11, lower than the industry average of 15.01. The stock has returned 6.3% over the last six months, outperforming the Zacks Diversified Communication Services sector, which has lost 3.1% over the same period.

Volkswagen AG is a Wolfsburg, Germany-based automobile manufacturer.

Volkswagen has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 9% for the current year. The stock has a P/E (F1) of 8.05, lower than the industry average of 8.96. The stock has returned 5.6% over the last six months, outperforming the Zacks Automotive - Foreign sector, which has lost 3% over the same period.

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