Do Not 'Sell the News' of Emmanuel Macron's French Victory Yet

 | May 09, 2017 | 9:00 AM EDT
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Emmanuel Macron's victory over Marine Le Pen in France's presidential elections was expected by a lot of investors. For once, the opinion polls got it right. Even so, investors who risked buying the rumor -- Macron's predicted victory -- should not rush into selling the actual news now.

Staying in European stocks, or even adding to exposure, makes sense, and I am not just saying so because today is European Union Day -- the anniversary of the Schuman Declaration that, in 1950, formed the basis of the organization that morphed into what is today the EU.

Sentiment among European investors about their own turf is very positive, which makes for a nice change. A survey by Frankfurt-based sentiment and behavioral finance expert Sentix institute shows that the sentiment index on the eurozone recently hit its highest level since July 2007. In other words, we're back to the days before the financial crisis and subsequent eurozone debt crisis.

The survey, carried out from May 4 to May 6 among 1,063 investors -- of whom 289 are institutional investors -- also shows sentiment toward the U.S. falling. European investors' current sentiment and expectations for the U.S. economy has declined for the second consecutive time.

"The attractiveness of Trump's policy is becoming increasingly smaller," Manfred Huebner, Sentix managing director, said in a statement.

All this indicates that money is likely to keep pouring into European equities, which had seen hefty outflows before the Dutch elections in mid-March and before the first round of the French election in April because of fears of a victory by the far right.

In the Sentix survey, investors were very positive on Germany, the eurozone's biggest economy, which saw the fifth-highest reading of the overall sentiment index. With elections coming in September, that country could show some interesting opportunities for investors if volatility increases.

The German economy seems to be in very good health. Trade balance data out of Germany on Tuesday showed that exports jumped by 10.8% in March. More encouragingly, perhaps, imports surged by 14.7%, potentially showing that those parsimonious Germans are beginning to splash the cash a bit.

Investors seeking standard exposure to the Eurozone probably should look at the ETFs that offer it. Two popular ones are the iShares MSCI EMU ETF (EZU) and the SPDR EURO STOXX 50 ETF (FEZ) . For those looking to Germany in particular, there is the iShares MSCI Germany Index Fund ETF (EWG) .

For more adventurous investors, it may be a good idea to look at some German growth stocks. Screening on FactSet for companies with sales growth above 5% a year and with return on equity (ROE) above 20% results in some interesting stocks for further research.

One of them is MTU Aero Engines (MTUAY) , a manufacturer of military aircraft engines and gas turbines. It has annual sales growth of 10% and a healthy ROE of 21.8%. On a forward 12-month basis, it trades on a price/earnings (PE) of 17.6.

Last week, MTU Aero reaffirmed its outlook, saying it aims for revenue between €5.1 billion ($5.6 billion) and €5.2 billion this year and that it expects its commercial maintenance business to be the fastest-growing of the group.

Fashion retailer Hugo Boss (HUGPF) is another stock worth a closer look. The company's sales are growing at below 6%, according to FactSet, but it has a ROE of 22.9% and it trades at a forward 12-month PE of 18.7. However, investors should be aware that the group is in the middle of a restructuring program and its first-quarter sales only increased by 1% year on year.

A third stock comes from a far less glamorous sector. Fuchs Petrolub (FUPBY) is a producer of lubricants for industry, selling products such as engine and gear oils for cars and motorcycles, corrosion preventive substances, and various greases for heavy industry. It posted sales growth of more than 6%, according to FactSet, and has a ROE of 22%.

With sentiment on European stocks increasingly positive and fears of a correction in the U.S. increasing, now is not the time to take profits on the eurozone. Plus, if the Fed raises interest rates and leads to a strengthening of the dollar vs. the euro, U.S. investors will get additional firepower.

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