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Why investors are looking at European stocks again

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Wall Street is looking at European stocks for opportunities again, despite political risk in the euro zone.

"We're making a lot of money in Europe because the headlines are bad but the companies are taking advantage of the situation," said David Marcus, CEO of Evermore Global Advisors, whose Europe-heavy global value fund (EVGBX) climbed nearly 17.7 percent last year.

Investors have been cautious about investing in the continent given the Greek debt crisis that gripped markets in 2015 — again — and last June's surprise U.K. vote to leave the European Union. The months ahead bring major elections in France and Germany, which some worry could strengthen populist voices and even threaten the breakup of the EU.

But some of the largest investment firms now say it's time to buy Europe, especially since U.S. stocks look expensive at all-time highs and emerging market stocks have already rebounded with a 9 percent jump so far this year.

Last Monday BlackRock began recommending European stocks and downgraded its view on emerging market debt to neutral. A few days later Bank of America Merrill Lynch put out a note saying how European stocks trade at their cheapest in 40 years versus U.S. stocks. The reports follow Goldman Sachs comments earlier in the year to buy European stocks.

The argument is that European companies are increasing earnings against an improving economic backdrop.

The STOXX Europe 600 remains 10 percent below its all-time high hit in spring 2015, despite touching a 52-week high Monday.

Dan Denbow, senior portfolio manager of equity investments at USAA, also sees better dividend returns for investors in European stocks than those based in the U.S. He has $2.07 billion in assets under management.

Other investors are looking at specific stocks that should be less affected by near-term political unrest.

Consumer

Activist investor David Winters likes some European companies that have a global business, such as Heineken and Nestle. Winters is founder and CEO of Wintergreen Advisers.

"They're just really good companies because they sell at lower prices because they're based in Europe. They have stable products and good balance sheets," Winters said, adding that he thinks "there's a real case to be made to be a buyer of international assets because you're buying it with a strong dollar."

The euro currently trades just above a 13-year low against the U.S. dollar.

Industrials

Dollar strength and euro weakness are particularly helpful for European exporters such as those in the industrials sector.

Helped partly by sales to China, German manufacturing giant Siemens reported a jump in industrial business profit for the latest quarter and raised its earnings forecasts.

In contrast, U.S.-based rival General Electric posted disappointing sales and maintained its outlook for earnings per share this year. A measure of revenue in industrial businesses fell 1 percent from the same period last year, missing GE's forecast for 0 to 2 percent growth. More than half of GE's sales come from overseas.

GE shares eked out a 0.07 percent gain last week after four straight weeks of losses, while Siemens shares climbed nearly 1.2 percent for their fourth weekly gain in five.

Special situations

Investors who look for ways to play business shakeups also see more opportunity around the changing European landscape.

"We're in an environment where crazy things are happening everywhere, and as an investor that's good," Marcus said. "You want dislocation. You want stress."

One example Marcus likes to talk about is Vivendi, a French conglomerate which could benefit from significant changes in firms it owns fully or in part, such as Universal Music and Telecom Italia. Vivendi has a 3.2 percent weighting in Marcus's global value fund.

That said, political risks in Europe could end up overshadowing benefits from growth this year. The STOXX Europe 600 lost 1.2 percent last year while the S&P 500 climbed more than 9 percent.

"Uncertainty itself is probably more a detriment than what actually happens," Denbow said. "Until you get clarity on that you have people sitting on their hands."

— Reuters contributed to this report.