Is Europe in Your Plans?

I suspect that many stock investors are leery of investing in Europe, associating the continent with slow growth along with the risks of the occasional debt blow-up emanating from one of the less responsible southern countries of the region.

Put those perceptions aside. Over the past year, a typical European stock index has performed almost as well as the high-flying Dow 30 or Standard & Poor’s 500. Witness the performance of the Vanguard FTSE Europe exchange-traded fund (ticker: VGK).

As the Motley Fool points out in a piece posted Wednesday, Europe is home to some of the strongest-performing blue chips in the world, and an economy that is in recovery mode following a few challenging years.

Motley Fool

Investing in Europe

” Vodafone (VOD), headquartered in the U.K., surged 55% and yields a whopping 5.5%,” writes the Fool. “Switzerland-based pharmaceutical powerhouse Novartis (NVS) jumped 37% and yields 3.2%. It suffered a patent expiration for its multibillion-dollar Diovan drug last year, but it has received a bunch of breakthrough therapy designations from the FDA, and its pipeline is promising.

“And France-based oil giant Total (TOT) popped 30% and yields 4.5%. Total is already diversified and is expanding its reach more, boosting its liquefied natural gas (LNG) operations and investing in solar energy.”

But for those who prefer staying closer to home, StreetAuthority’s David Sterman has written a piece profiling two interesting biotech investments endorsed by Seth Klarman, a value investor with Baupost Group.

They are Idenix Pharmaceuticals (IDIX) and Theravance (THRX).

According to Sterman, “Klarman thinks Idenix with its hepatitis C drug candidate IDX20963, could be the blockbuster in this market. He started buying shares of Idenix in 2011, and thanks to ongoing buying efforts (including a purchase of 3 million shares in this year’s third quarter), now owns nearly 30 million shares, worth roughly $135 million at current prices.”

StreetAuthority

Two Biotechs to Consider

In contrast to Idenix, where Klarman has been averaging down, he’s been averaging up with his investment in Theravance as it moves ever higher.

“In May, the FDA approved Breo, a twice-a-day inhaler that treats chronic obstructive pulmonary disease (COPD). Just as Idenix is going after the large hepatitis C market, Theravance’s COPD drug is aimed at an ailment that afflicts 250 million people worldwide,” writes Sterman.

He points out that the risk profiles for these two stocks are quite different. The biggest risk for Theravance is a sales trajectory that is slower than investors currently anticipate; for Idenix, it’s the possibility that it never gets out of clinical trials at all.

I close with a quick glance of Goldman Sachs‘ Top 10 Market Themes for 2014, as summarized by Business Insider.

Frankly, the note is a bit hard to follow. But here’s one prediction from Goldman that will warm the hearts of many stock investors.

“Despite the improvement in growth, we expect G4 central banks to continue to signal that rates are set to remain on hold near the zero bound for a prolonged period, faced with low inflation and high unemployment. In the US, our forecast is still for no hikes until 2016 and we expect the commitment to low rates to be reinforced in the next few months.”

E-mail: editors@barrons.com