McCall’s Call: Finding The Value In Europe

September 28, 2011


The Global X FTSE Norway ETF (NYSEArca: NORW) is down 23 percent in 2011. It’s surprising to see NORW underperform, considering 40 percent of the ETF is in the energy sector.

Perhaps that has something to do with the 24 percent of NORW that’s focused on financials, though Norwegian banks can’t be compared with many of the large European banks at the center of this crisis, particularly those in France.

Looking out a few years, I see NORW as a potentially big winner with less risk than its European peers. Entering a half position in NORW below $12.50/share would be my first move, followed by another purchase a few months later.

The Value Trap

As someone wise once said: “Stocks are cheap, but they can always get cheaper.” This old adage applies to the current situation in Europe. Based on even modest growth estimates for the coming years, most Western European countries are trading at attractive valuations.

I look at this potential opportunity in two ways. One is that, realistically, you’ll never buy at the bottom; therefore, starting to build positions is a good strategy. I like to refer to this as finding the “sweet spot” when entering a new investment.

The other view is that stocks could get cheaper, and possibly much cheaper, if the contagion spreads and the market plumbs new lows before finding a bottom.

There’s also the possibility that future growth will end up coming in much lower than current expectations. If you’re in this camp, you may want to hold back from buying until valuations get even cheaper.

Whatever you decide to do, realize these are long-term plays, so don’t make decisions based on short-term factors.

Matthew D. McCall is editor of The ETF Bulletin and president of Penn Financial Group LLC, a New York-based wealth management firm specializing in investment strategies using ETFs.


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