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Profit from Europe's Success with these 5 Top Rated Stocks

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Investors are keenly watching two key events unfolding in the Eurozone today. Even as British Prime Minister Theresa May faces a crucial election, the ECB is scheduled to hold a policy meeting at Tallinn, Estonia. An upset in the elections could cause significant hiccups as Britain prepares to negotiate its exit from EU. Meanwhile, the ECB is likely to change the course of its monetary policy or at least provide signals to that effect

But what investors should be focusing on is the area’s strong economic recovery, because of which the region’s central bank is likely to wind up stimulus. Record fund inflows have already signaled Europe’s popularity among investors. Adding stocks from Europe could lead to substantial profits for your portfolio as well.

Europe Attracts Massive Fund Inflows

Investors seem to have largely ignored the possible risks arising out of Brexit and the upcoming election. Data from Lipper Research indicates that U.S. funds focused on Europe have attracted net inflows of $4.2 billion during May. Such a level of inflow has increased year to date net inflow to $9.2 billion. Additionally, Bank of America Merrill Lynch data shows that $13.7 billion has been invested in Europe funds.

It’s been quite a turnaround after investors shunned the continent for an extended period due to multiple factors. These include the French election, Brexit and the economic crisis in Greece. However, a resilient economy and strong earnings performance seems to have turned the tide. Most analysts brush aside valuation related fears and believe earnings growth will continue to power stocks.

Economic Rebound Exceeds Expectations

Germany led Europe’s strong economic performance last month, helping the IHS Markit’s final composite PMI for May maintain its level of 56.8. For Germany, business activity increased to a six year high of 57.4. Meanwhile, the entire region held on to its level for April, which is the highest since 2011. According to IHS Markit, Germany and France were driving growth for the entire region.

Additionally, Markit says that its data implies that GDP had increased by 0.7% in the second quarter. This is higher than the European Commission’s official statistics agency Eurostat’s projection of 0.5%. Of course, this projection is likely to move higher given the significant upward revisions experienced by Greece and Italy next week.  Meanwhile, unemployment has declined to 9.3%, its lowest level since 2009. Markit now thinks several other growth projections for the Eurozone will also be revised upward. Growth for the Eurozone was twice as much as that of the U.S. in the first quarter. 

Political, ECB Related Risks Overstated

Even as U.S. stocks continue to hover near record levels, a large swathe of market watchers think that benchmarks will only experience moderate gains in the months ahead. In their opinion, better investment opportunities exist across the pond. Macron’s victory in the French elections has already reduced political risk to a great extent. And even though Theresa May’s lead is slipping according to recent opinion polls, she is still tipped to win parliamentary elections.

Coming to the ECB, even though the Eurozone’s central bank is slated to tighten monetary conditions or at least hint at doing so in the near term, the associated risk has been overstated. Even if the ECB was to begin the process of rolling back monetary stimulus, it would be some time before the rates turn normal. Additionally, a switch from negative to positive rates would greatly aid banks, who make up a large chunk of the region’s market.

Our Choices

A close analysis of events in Europe reveals that political and economic risks have been overstated. Moreover, growth in the Eurozone has been proceeding at a considerably higher pace compared to the U.S. Investors have also sought out European equities for their strong earnings growth and reasonable valuations.

Adding European stocks to your portfolio makes for a smart option at this point. However, picking winning stocks may 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.

We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and a good VGM score. You can see the complete list of today’s Zacks #1 Rank stocks here.

Air France-KLM SA (AFLYY - Free Report) is an airline company, based in Paris. The company's core business is passenger transport, cargo transport, and aircraft maintenance services

Air France-KLM has a VGM Score of A. The company has expected earnings growth of 27.1% for the current year. Its earnings estimate for the current year has improved by 24.5% over the last 30 days. 

BASF SE (BASFY - Free Report) is a leading global chemical company based in Ludwigshafen am Rhein, Germany.

BASF has a VGM Score of B. The company has expected earnings growth of 19.1% for the current year. Its earnings estimate for the current year has improved by 2.6% over the last 30 days. 

Koninklijke DSM N.V. is involved with the materials, health and nutrition businesses on a global basis. The company is based in Heerlen, the Netherlands.

DSM N.V. has a VGM Score of B. The company has expected earnings growth of 30.6% for the current year. Its earnings estimate for the current year has improved by 2.5% over the last 30 days. 

Atlas Copco AB (ATLKY - Free Report) is a world leading provider of industrial productivity solutions. The company is based in Stockholm, Sweden.

Atlas Copco has a VGM Score of B. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 9.8% over the last 30 days. 

DSV A/S (DSDVY - Free Report) provides transport and logistics services. It is headquartered in Hedehusene, Denmark.

DSV A/S has a VGM Score of B. The company has expected earnings growth of 25.7% for the current year. Its earnings estimate for the current year has improved by 10.4% over the last 30 days. 

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