The European Central Bank is pulling a page out of the United States' playbook and launching an aggressive bond buyback program that it hopes will spark an economic recovery similar to what America has enjoyed. Since the U.S. launched its quantitative easing program in 2008, the U.S. stock market has surged by more than 150%. If Europe's buyback program succeeds, investors in these five European stocks may be rewarded.
1. Ryanair Holdings (RYAAY -4.71%)
A recovery in Europe could prompt more business and vacation travel among European countries, and that could translate into top and bottom line growth for Ryanair Holdings, one of Europe's leading airlines. Ryanair's fleet of more than 300 Boeing 737's serves 186 airports, primarily in Europe, and its 9% year-over-year sales growth in the first half of last year, 26% operating margin, and 36% year-over-year EPS growth make this company intriguing, especially when investors consider that the American airline industry has been a top performer since the end of the U.S. recession.
2. ICON Plc (ICLR -1.45%)
A stabilizing economy could add clarity and confidence important to encouraging investment in innovation, such as drug research & development. In the past five years, U.S. recovery has sparked interest in funding drug research, leading to significant R&D spending by emerging biotechnology companies. One of the key beneficiaries of this spending has been contract research organizations like ICON Plc, which design, monitor, analyze, and manage clinical research trials for the industry. If an economic recovery fuels similar investment in European medical research, the Ireland-based ICON Plc could see sales improve from the 14.1% year-over-year growth notched last quarter. Investors can also take solace knowing that ICON Plc is debt free, with $2.54 in trailing 12-month earnings, and an arguably reasonable forward P/E ratio of 17.3.
3. Luxottica Group SpA (LUXTY)
If Europe's economy recovers, demand for Luxottica's luxury brand eyewear could climb. That would be good news for Italy-based Luxottica's shareholders given that Luxottica gets roughly half of its business from markets outside the U.S. -- particularly from markets in Europe and China. Luxottica's products include iconic brands such as Ray-Ban and Oakley, as well as licensed brands such as Armani and Prada, and the company operates both a wholesale business and a retail business, which sells eyewear through the LensCrafters, Pearle Vision, and Sunglass Hut brands. Analysts are already expecting that Luxottica's sales will climb from $9.29 billion in 2014 to $10.10 billion in 2015 and that its EPS will grow from $1.70 last year to $2.02 this year. If Europe recovers, that growth could accelerate.
4. Daimler AG (DDAI.F -4.27%)
Automakers were one of the biggest beneficiaries of the economic recovery in America. After suffering significant sales and earnings pressure, U.S. automakers like Ford have returned to profitability due to a combination of lower rates and an improving job market. Europe's growth-friendly policies could similarly drive more shoppers to showrooms, in turn supporting sales for Daimler AG, the iconic maker of Mercedes Benz cars and Daimler Trucks. That may already be happening given that EU passenger car registrations have posted year-over-year growth for 16 consecutive months. In 2014, those registrations were up 5.7% from 2013. As a result of improving European markets and solid U.S. demand, Daimler's third quarter revenue grew 10% year-over-year, and the company delivered EPS of $2.98 (adjusted from Euros).
5. Intercontinental Hotels (IHG -2.52%)
U.K. hotelier Intercontinental Hotels owns, manages, or leases 4,760 hotels worldwide across 100 countries, and improving European business conditions could send occupancy and average daily room rates higher. Intercontinental reported that revenue per available room, or RevPAR, at its U.S. locations reached 8.4% in the third quarter -- the strongest quarterly performance in eight years. If Europe follows a similar path, RevPAR there could advance nicely from it's 6.1% third quarter pace. If so, it would lend valuable support to Intercontinental's expansion plans, which include the opening of nearly 1,200 hotels, 45% of which are already under construction.
Work to do
Europe's economy has a lot of catching up to do to the U.S. and it's uncertain whether or not the European Central Bank's decision to spend 60 billion Euros buying bonds on the open market monthly will prove to be as successful there as quantitative easing proved to be in America. However, if the Bank's program is successful then European equity prices could enjoy significant returns that would be likely to support investors in Ryanair, Icon Plc, Luxottica, Daimler, and Intercontinental.