Investors should be looking at European stocks for value and returns despite the higher risk associated with the region and overlook U.S. stocks, according to Peter Toogood, director of investment at Old Broad Street Research.
Toogood told CNBC he thought U.S. equities were not good value compared with European stocks.
“U.S. equity actually isn’t very good because it hasn’t got a very good yield,” he said. “If you’re going to buy an equity, personally, I would go and stick it on a global European company, but perhaps based in Germany.”
Toogood said that most of the U.S. stocks aren’t that cheap and the multiples aren’t that compelling, meaning that the amount that investors are willing to pay for a high earning stock compared to its price isn’t favorable.
He explained that the reason for this is that zero interest rates in Europe are creating huge distortions in the market. Toogood believes a bubble will be created in the future with equities and people will become more desperate for this income after four years of zero rates.
Carl Weinberg, chief economist at High Frequency Economics, explained that he was more risk averse and favored U.S. stocks to European.
“We think on the U.S. side stocks are pretty good value right now. Earnings yields of 7 percent are very attractive compared to what you’re getting on bonds,” he told CNBC Monday. “From a macroeconomic point of view, looking at what’s happening in Europe with the banks, the risk to the economy. I have the D-word in my vocabulary, that’s Depression.”
When quizzed over whether low earnings growth would mean stocks were less appealing, Weinberg explained that yields on stocks would remain high regardless of earnings growth.
“I’m offering you 7 percent in stocks, I’m offering you 4.5 percent in bonds where do you want to go? .... we’ve got good value in stocks right now, we’ll draw people in,” he said.
Weinberg, was adamant that fears of a so-called fiscal cliff in the U.S., when tax laws expire that will reduce the budget deficit, were nowhere near as serious as the problems in the euro zone. He indicated that despite electoral posturing in the U.S. this fall, the deficit reforms of the country will be resolved early next year, no matter who has the next termin the White House.
—By CNBC.com’s Matt Clinch
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No disclosure information was available for Peter Toogood or Carl Weinberg.