European stocks are the cheapest they've been relative to their U.S. counterparts in nearly 40 years, and they have more upside potential for profit growth, making them an attractive buy even with looming political risk, according to analysts at Bank of America Merrill Lynch.
The analysts made a bullish case Thursday to buy Europe, based on the idea that corporate earnings there have bottomed and are set to see double-digit growth for the first time since 2010. On a price-to-book basis, Europe is the cheapest it has been to the U.S. in nearly 40 years.
European equities have seriously underperformed U.S. stocks over the past nine years, with the total return index for MSCI U.S. beating MSCI Europe by 105 percent in dollar terms from the trough in 2008.
That said, the political situation looks shakier on the Continent, with a number of elections this year. The most concerning by far is the French election. Nervousness about that vote, as well as Greece's interminable debt crises, have put pressure on bond yields recently.