Are European Stocks a Good Buy?

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By Jacob Maslow

London Stock ExchangeMake no mistake about it. A lot of the smart money has been leaving the US stock market. Judged solely on the amount of money in stock funds that have been leaving US shores, it is safe to say that there is a multibillion dollar exodus. In the year to date, over $44 billion have flowed out of the US into Europe. In fact, European equity funds have enjoyed a total of around $46.6 billion in capital inflows. We are not even halfway through the year. That is how hot European stocks are.

Does this mean that it is high time for you to invest in European stocks? I don’t think so. In fact, this is a good time to wait out further profit-taking in US stock markets. You have to understand that the US stock market, as a whole, is overbought. It is overvalued and a lot of investors have pretty much realized that if they get into the market, they are probably going to be buying near the top. This is why it is a good idea to come up with a list of otherwise solid companies, preferably companies that pay dividends, companies that are market leaders, and most importantly, long-term fundamental plays. Put all these factors together and you should have a nice basket of stocks to watch.

Keep in mind that this year is shaping up to be a tough year in terms of earnings for many American stocks, thanks primarily to the strong US dollar. If these companies suffer mid-term or quasi-long-term hiccups, it would be a good time to scoop them up. Of course, you need to keep in mind that you should leave some money on the side because you may have to do some dollar-cost averaging. It is very hard to time the bottom of a particular stock. It is very likely that if you think that the stock has hit a nice dip, it will continue to sink much further. Setting aside some extra cash for dollar-cost averaging would pave the way for you to gain a solid position so that when the stock appreciates in the mid-term, you can come up a winner. In my view, this is the way to play the current stock market in the United States.

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