Nearing a Bottom in Europe?

 | May 08, 2013 | 4:30 PM EDT
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We learned this morning that Germany's industrial output increased in March, which was not expected among the masses.

Not only did the reported figure come in far stronger -- up 1.2% vs. the expected  0.1%  -- but the February figure was also revised to a positive 0.6%. That paints a far better, although not great, picture than what was previously thought. The gain in factory orders also helped. That could signal better days ahead, not to mention comments from the Ministry of Economics and Technology that suggest a rebound in the construction sector is in the offing.

Some will get excited and use these two months to claim Europe is getting back on track. That could be the case, but it's also possible that Europe is just bottoming.  I say possible because not all the data is lining up in the same direction.

Remember that the purchasing managers' survey for April showed the German manufacturing sector contracted at the fastest pace since December 2012. Companies like General Electric (GE) shared that they saw Europe get marginally worse during the quarter. Even CNH Global (CNH), which is benefitting from improving agricultural equipment demand, posted a loss on its construction equipment business due to its European exposure.

Another point to consider is the spring 2013 forecast was released last week by the European Commission. The EC trimmed its 2013 growth outlook for Germany to 0.4% from 0.5%. The group also revised its 2014 forecast lower to 1.8% from 2%.

With conflicting data, it's going to take another month or two to see if the turn reported by the German industrial output is real or not. If it turns out that Europe has indeed bottomed, which would be a boon to companies with meaningful exposure to Europe not to mention their shares as expectations would have to revised.

One such stock is CNH Global, which I mentioned when I recommended shares of Deere & Co. (DE) recently. Another stock is Paccar (PCAR), a heavy truck manufacturer which counts European truck manufacturer DAF among its assets.

During Paccar's March quarter conference call the management team shared that DAF truck orders in Europe increased 29% vs. year ago levels and it's starting to see customers return ahead of the introduction of Euro 6 emission requirements next year. That rebound in truck demand is positive for not only Paccar but also Eaton Corp. (ETN) as well as Cummins Engine (CMI). Other U.S. companies with strong exposure to Europe include Honeywell (HON), McDonald's (MCD) and DuPont (DD) as well as Ford (F).

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