The U.S. stock market is doing just fine. More than fine, in fact. On Wednesday, the S&P 500 closed at a new all-time high, and the index is up roughly 4% year to date through the first seven weeks of 2025. That comes on the heels of back-to-back years of gains in excess of 20%.
And while the current bull market has been mostly spearheaded by a handful of artificial intelligence and Magnificent Seven stocks, the rally is finally starting to spread, with the Equal Weight index also up 4% this year, the Dow Jones Industrial up nearly 5%, and the Russell 2000 up nearly 3%.
But European stocks are faring much better.
The STOXX Europe 600 index, comprised of 600 large-, mid- and small-cap stocks from 17 different European countries and representing roughly 90% of Europe’s total market cap, is up 8.3% already this year. It’s not a fluke. The European Central Bank has lower interest rates (2.75%) than the Federal Reserve (4.25%-4.5%) and is expected to continue slashing at a faster pace, to below 2% by year’s end.
The Bank of England’s rates are slightly higher than the Fed’s (4.5%) at the moment, but they too are expected to slash quicker, to below 4% by year’s end. Meanwhile, the Fed has pumped the brakes on its rate cut program, with only one more cut (by 25 basis points) expected by year’s end.
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And while the U.S. economy is still growing faster than most European countries (2.8% in 2024, versus 0.9% in the European Union), U.S. GDP growth is projected to slow to 2.2% this year, while Europe’s GDP growth expands to 1.1%. That obviously would still mean that America’s economy is outpacing Europe’s by a 2-to-1 ratio. But European stocks are much cheaper than U.S. stocks, trading at 13.8x forward earnings estimates, versus a 20.95 forward price-to-earnings ratio for the S&P.
Overseas Stocks Garnering Interest
So, with borrowing costs and stock valuations cheaper, and economic growth improving rather than contracting, European stocks hold a lot of appeal right now, especially at a time when, amid the inherent uncertainty and volatility that a second Donald Trump presidency brings (mostly due to tariffs), some investors are seeking alternatives to U.S. stocks.
According to a Bank of America Fund Manager survey this month, 34% of fund managers said that global stocks (i.e. ex-U.S. stocks) will be the leading asset class in 2025, while U.S. equities ranked third at 18% (gold came in second, at 22%). That’s a sharp left turn from the January survey, when U.S. stocks were the leading asset class among the fund managers surveyed, at 27%.
Since then, the realities of a tariff-heavy Trump presidency, escalating inflation and a slow-moving Fed have conspired to weigh on U.S. stocks, which are up just over 1% in the month since Trump’s inauguration.
Of course, all of that can change in the blink of an eye if the February CPI print comes in cooler than expected or if Trump backs off on some of his tariff rhetoric. But for now, money is pouring into European markets – last week, inflows into European equities reached a two-year high, according to Deutsche Bank.
3 Undervalued European Stocks to Buy
So, with European stocks suddenly in favor, which across-the-pond equities look the most attractive from a value perspective? Here are three profiles that stand out.
1. Barclays PLC (BCS)
Projected 2025 EPS growth: 31.4%
Projected 2025 Revenue growth: 5.4%
Forward P/E ratio: 7.4
Price/sales ratio: 1.8
Price/book ratio: 0.62
Stock performance: 16.3% YTD
2. Aptiv PLC (APTV)
Projected 2025 EPS growth: 16%
Projected 2025 Revenue growth: 1.2%
Forward P/E ratio: 9.2
Price/sales ratio: 0.87
Price/book ratio: 1.74
Stock performance: 11.2%
3. Aegon Ltd. (AEG)
Projected 2025 EPS growth: 28.5%
Projected 2025 Revenue growth: 2.1%
Forward P/E ratio: 8.6
Price/sales ratio: 0.45
Price/book ratio: 1.23
Stock performance: 15.7%
Barclays is a name you likely know. It’s a multinational large-cap bank headquartered in the United Kingdom that’s estimated to generate a record $28.2 billion in revenue this year. It’s the largest bank in Europe by total assets and is thus a great way to play European – and U.K. – economic growth at a discount.
Aptiv is an auto parts supplier based in Switzerland that was a spinoff from the now-defunct American company, Delphi Automotive. It makes software and hardware solutions for car companies around the world, aimed primarily at advanced safety features, electric vehicles, and automated driving. APTV shares were in the dumps for nearly three full years after peaking above 176 a share in late 2021, but it appears – given the expected growth this year – investors are now finding value in it, with shares up 29% since finally bottoming in November. This looks like a decent buy-low candidate with plenty of upside.
Finally, Aegon is a mid-cap Dutch life insurance company. It’s boring, but it’s growing, with 28.5% EPS growth expected this year. Investors have taken notice, with the stock up nearly 16% year to date and nearing their all-time highs from last May. One important caveat here: Aegon reports earnings today (February 20), so you might want to wait to see those results before nibbling.
All three of these undervalued European stocks boast the right combination of value, growth and share price momentum. After years of underperformance, market winds seem to be shifting to Europe these days. Given the comparative value, it’s a good time to add some European exposure to your portfolio.
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