5 Ways to Profit from Europe's Renaissance

In case you missed it, investors have declared victory in Europe. So if Europe's back and better than ever, how can you profit from it?

Below, I'll show you five different ways to play a European recovery. But first, let's take a look at the latest events on the continent and get a sense of where things are likely to go from here.

What's happenin'
The combination of a semi-coerced 50% "voluntary" writedown on Greek bonds with approval for massive leverage within Europe's answer to the U.S. stimulus package three years ago sent stock markets soaring last week. In addition, by providing roughly $150 billion to recapitalize banks, the eurozone hopes to avoid the worst of what the U.S. experienced during its market meltdown in 2008 and early 2009.

Of course, not everyone is convinced that all these steps will actually solve Europe's problems. But whether you believe in the Euro-bailout or remain skeptical, one thing seems clear: Europe has thus far found the will to fight for its economic stability by any means necessary. And like those who fought the combined might of the Federal Reserve and the U.S. government in early 2009 by remaining bearish, you could easily end up missing a big rally in European stocks if you stay on the sidelines.

How to win
So if Europe is truly on the road to recovery, you need to know which investments will best let you take advantage of the situation. Here are five broad ways to make the most from Europe:

1. The easy way: European stock ETFs
Exchange-traded funds make it easy to play a wide variety of niche investments, and Europe is no exception. For instance, the Vanguard MSCI Europe ETF holds stocks from countries throughout the EU, including both economically strong countries like Germany and France as well as weaker ones such as Greece, Ireland, and Spain.

If you want more focused exposure, country-specific ETFs let you narrow your focus even more. For instance, iShares MSCI Germany (NYSE: EWG  ) and iShares MSCI Austria (NYSE: EWO  ) both give you a taste of European exposure but own completely different stocks. With a wide array of countries to choose from, you can pick whichever one you think has the best prospects.

2. The risky play: high-volatility stocks
With Europe's future in question, some stocks have a lot more to lose than others. For banks in the areas that the crisis has most affected, including National Bank of Greece (NYSE: NBG  ) , Bank of Ireland (NYSE: IRE  ) , and Banco Santander (NYSE: STD  ) , a recovery could mean a huge bounce for beaten-down share prices. The same goes for stocks such as telecom giant Telefonica (NYSE: TEF  ) , which has seen its stock punished for its Spanish home despite having big overseas operations in booming Latin America.

3. The money play: currencies
In addition to rising stock markets, we've seen a huge bounce in the value of the euro against the dollar since last week's announcement. Shareholders in the CurrencyShares Euro Trust have reaped the benefits, and as the survival of European economic union looks more likely, the dollar's dangers should reassert themselves and push investors back toward the euro.

4. U.S. companies with European exposure
Some investors shied away from U.S. stocks that did a lot of business in Europe when the crisis first hit. But now, shares of companies that get a big portion of their sales in Europe, including Philip Morris International (NYSE: PM  ) , look even stronger than they did before. Look for them to bounce back if Europe's former headwinds turn into tailwinds.

5. Commodities
The threat of a European crisis has stoked fears of a new global recession, which in turn has hurt commodity markets. But with Europe solidly back in the picture, investors should once again see the value of physical things over paper money -- especially to the extent that European monetary policy ends up creating the same printing-press mentality that has gripped the U.S. markets for three years now.

Start moving now
Europe's woes aren't anywhere close to having disappeared entirely. But with the real possibility of a big move forward for markets on the Continent, you need to prepare for the potential impact of a new European boom. If you can beat the crowd, you'll be much better positioned to profit from Europe's next renaissance.

No matter what happens in Europe, many smart investors have turned to dividend stocks to protect them from the worst of what the future may bring. This brand-new Motley Fool special free report has 11 rock-solid dividend stocks that are poised to make your future a little brighter.

Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance. You can follow him on Twitter here.

Fool contributor Dan Caplinger enjoys a good renaissance. He owns shares of Vanguard European ETF. The Motley Fool owns shares of Philip Morris International and Telefonica. Motley Fool newsletter services have recommended buying shares of Philip Morris International and creating a bear put spread position in CurrencyShares Euro. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy works around the world.


Read/Post Comments (4) | Recommend This Article (3)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 31, 2011, at 5:28 PM, xetn wrote:

    What Europe Renaissance? The EU has not solved any issue; they have only "kicked the can". They will try to inflate their way out, just like the US an in the end, the problems will still be there; unresolved.

  • Report this Comment On October 31, 2011, at 7:09 PM, TJOMAHO75 wrote:

    Ireland is "whistling past the graveyard" at the moment. The Euro is doomed but there will always be winners (some) and loosers (most). Pick carefully.

  • Report this Comment On October 31, 2011, at 10:43 PM, police12345 wrote:

    The EU is as solid as a sand castle on the shores of Normandy. Socialism will not be the undoing of Germany - the workers/producers will not continue supporting failed socialist countries. Within 3 to 5 years or sooner the EU will be unrecognizeable in its present form. The Euro will be monopoly money.

    The big question will be what happens to the western economy once the EU leaves the planet.

  • Report this Comment On November 01, 2011, at 9:16 PM, Shawnerz wrote:

    What a difference a day makes, eh?

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