Looking toward the European play as US stocks slump
European stocks have been staging a comeback this summer as the Continent shows new signs of recovery. But for investors still wary of prospects in the euro zone prospects, analysts say there is a safer way to play its nascent recovery: Buy shares of American companies that do a lot of business there.
U.S. public companies that generate 30 percent or more of their sales in Europe include Priceline, Philip Morris International, McDonald's, International Flavors & Fragrance and Alexion Pharmaceuticals, according to Greg Harrison, an analyst at Thomson Reuters. On average, shares of these companies have beat the S&P 500 in the past three- and six-month periods, he said.
Many companies with large European exposure reported better earnings and sales growth in the second quarter from the first quarter. Harrison pointed out that earnings of these EU-centric businesses were up 4.8% in the second quarter, while revenues rose 1.8%.
"This data is encouraging," said Edward Yardeni of Yardeni Research. "I do think that Europe is outperforming, based on current metrics. Valuation multiples have been depressed, which may present a good buying opportunity."
In addition, because of stronger growth in Germany and France, the economy in the European Union ended six quarters of negative performance in the second quarter, rising 0.3 percent, Eurostat reported Wednesday.
(Read more: Cramer: Europe about to buoy US market, really!)
Thomas Lee, chief equity strategist at JPMorgan, said he likes companies that generate sales in Europe but have less exposure in emerging markets, including Newmont Mining, Gilead Sciences, Akamai Technologies, St. Jude Medical, eBay, BlackRock, Priceline and Biogen.
Things may get even better. According to a survey of fund managers released this week by Bank of America, 88 percent of European fund managers expect the region to strengthen in the year ahead—twice the percentage recorded last month.
(Read more: Outsourcing is back—and that's good for business)
"The current earnings season shows global recovery reflected in European companies' performance. With the eurozone, the most undervalued major market by far, optimism on the region's equities should be sustained," said John Bilton, European investment strategist at BofA Merrill Lynch.
—By CNBC's Seema Mody. Follow her on Twitter: @SeemaCnbc