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European equities have gained strength after the European Central Bank (ECB) left room for increasing its asset purchasing program, quashing expectations of a stimulus wind down. The ECB also kept its benchmark interest rates unchanged since the Eurozone’s annual rate of inflation is still well below the central bank’s target. Such moves are expected to boost the Eurozone economy. In fact, the economy expanded faster than estimated over the 12 months through June.

Banking on such encouraging developments, investing in sound European stocks is not a bad proposition.

European Bourses Gain Ground, Euro Strengthens

The Stoxx Europe 600 index gained 0.3% on Sep 7 to close at 374.95. On Sep 6, the index inched up 0.1%, reversing a two-day losing streak. The countries that make up the index are Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Switzerland, Sweden and the U.K. German and French equities gained significantly, with the DAX 30 index jumping 0.7% to 12,296.63 and the CAC 40 index increasing 0.3% to 5,114.62. In London, the FTSE 100 UKX rose 0.6% to 7,396.98.

The euro, in the meanwhile, reached a two-and-a-half-year high versus the dollar. The euro advanced 0.4% to $1.2069 after touching $1.2090, its highest since January 2015. The euro has climbed 14% as against the dollar so far this year.

ECB Leaves Room for More Stimulus

European stocks gained ground and the single currency’s near-term outlook strengthened after the ECB paved way for more stimulus measures. ECB President Mario Draghi said that it stands to increase bond purchases if required.

Draghi informed the press that “the Governing Council confirms that the net asset purchases, at the current monthly pace of 60 billion euro, are intended to run until the end of Dec 2017, or beyond, if necessary.” But, he did mention that the central bank will decide the status of its asset purchasing program for next year this fall.

The ECB, nevertheless, reaffirmed its ultra-easy policy by retaining rates at record low levels. The central bank intends to keep rates unchanged for an extended period, well beyond its quantitative easing program. The ECB’s refinancing rate remains at 0%, while its deposit rate is at a minus 0.4%.

Draghi said that such “substantial degree” of monetary policy is essential until the end of the year, mostly due to low inflation rates. ECB officials trimmed the inflation forecast for next year to 1.2%, versus its June call for 1.3%. They also knocked a 10th of percentage point off the 2019 forecast to 1.5%. Bill Adams, senior international economist at PNC, added that the “euro benchmark interest rates will likely still be negative when Draghi steps down from office on Oct 31, 2019.” The central bank’s target, however, is near or just below 2%.

Eurozone Economic Growth Figures Revised Higher

Draghi emphasized that Eurozone – the 19 EU members using the single currency – economic growth is dependent on the ECB’s monetary stimulus. ECB staff economists, in the meantime, raised their forecast for 2017 Eurozone economic growth to 2.2%, from the June estimate of 1.9%. 

In fact, the Eurozone economy accelerated in the second quarter at 2.3% on a year-on-year basis, up from an earlier estimate of 2.2% growth, as per Eurostat. This is also higher than the 2% expansion registered in the first quarter.

Gross domestic product also grew 0.6% sequentially in the second quarter, higher than the 0.5% growth witnessed in the first quarter. Household outlays increased 0.5%, much faster than the 0.4% growth seen a quarter ago. Government expenditure rose to 0.5% on quarter from 0.2%. Gross fixed capital formation rose 0.9% in the second quarter after the 0.3% decline in the first quarter. Exports and imports also advanced 1.1% and 0.9%, respectively.

The EU28, too, saw 2.4% growth in the second quarter compared to the same period last year. Prominent nations including the Czech Republic, Sweden, Romania and the Netherlands saw the highest rates of growth of 2.5%, 1.7%, 1.6% and 1.5%, respectively.

5 Hot European Stocks

The ECB’s decision against winding down its stimulus program and upbeat second-quarter Eurozone economic growth bode well for European shares. Hence, investing in the same will be judicious.

We have, thus, selected five stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B.  Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.

Daimler AG (DDAIF - Free Report) is an automotive engineering company. The company is engaged in the development, production and distribution of cars, trucks and vans in Germany. Daimler AG has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings increased 0.8% over the last 30 days. The company has outperformed the industry in the past month (+10.6% vs +1.7%).

E.ON SE EONGY is an energy company. The company's segments include Energy Networks, Customer Solutions, and Renewables. E.ON SE has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings improved 5.1% over the last 30 days. The company has outperformed the industry in the past month (+6.5% vs +2.4%).

BASF SE (BASFY - Free Report) is a chemical company. The company operates through five segments, which include Chemicals, Performance Products, Functional Materials & Solutions, Agricultural Solutions, and Oil & Gas. The company has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings rose 9.7% over the last 90 days. The company has outperformed the industry in the past month (+6.3% vs +1.5%). You can see the complete list of today’s Zacks #1 Rank stocks here.

Telecom Italia SpA (TI - Free Report) operates fixed voice and data infrastructure in Italy, and provides mobile network platforms. The company has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings increased 6.6% over the last 30 days. The company, which is part of the Diversified Communication Services industry, has yielded a positive return of 6.1% on a year-to-date basis.

Ipsen S.A. (IPSEY - Free Report) operates as a pharmaceutical company. It operates in two segments, Primary Care and Specialty Care. Ipsen S.A. has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings rose 8.1% over the last 90 days. The company has outperformed the industry in the past month (+8.1% vs +4.3%).

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