VGK: European Stocks Gain Steam, Remain Inexpensive Heading Into 2024

World valuations look downright enticing exterior the US giant caps. Whereas home SMIDS commerce close to 13x subsequent 12 months’s earnings estimates, shares in Europe function even decrease price-to-earnings ratios. Yardeni Analysis notes that corporations inside the Financial and Financial Union of Europe commerce at simply 11.9x ahead earnings. That’s greater than seven turns decrease than the US inventory market.

I’ve a purchase ranking on the Vanguard FTSE Europe ETF (NYSEARCA:VGK). I see a compelling valuation, a low price, excessive liquidity, and improved technicals with this index fund.

World Fairness Market Valuations: Europe Cheap

For background, VGK seeks to trace the efficiency of the FTSE Developed Europe All Cap Index, which measures the funding return of shares issued by corporations positioned within the main markets of Europe, in keeping with Vanguard. It holds shares of corporations positioned in Austria, Belgium, Denmark, Finland, France, Germany, Greece, Eire, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the UK.

VGK is a big ETF with greater than $23 billion in belongings underneath administration, and it pays a dividend yield that’s about twice that of the S&P 500 at 3.15%. Share value momentum has improved considerably over the previous two months, incomes the fund a strong B ETF Grade from Searching for Alpha. With an exceptionally low annual expense ratio of simply 0.11%, I assert that VGK is a strong selection for a variety of investor time horizons. What’s extra, VGK has modest threat metrics whereas its liquidity is excessive – common every day quantity is about 2.7 million shares and Vanguard notes that the ETF’s 30-day median bid/ask unfold is simply two foundation factors.

Digging into the portfolio, the 4-star, gold-rated ETF by Morningstar is closely weighted towards giant caps. Simply 19% of the fund is taken into account mid-cap and 4% of the allocation is small-cap in measurement. Morningstar notes that VGK’s P/E ratio is simply 11.2 as of the tip of October. Following a considerable rally since then, I determine that the a number of is nearer to 12 at present – nonetheless a discount contemplating long-term earnings development close to 11%, making for a PEG ratio close to 1.

VGK: Portfolio & Issue Profiles

VGK’s sector composition seems completely different from that of the S&P 500. The most important weight is Financials at 18% whereas the growth-focused Data Expertise sector is simply 7% of VGK, about 20 share factors decrease than the SPX. Moreover, there’s single-stock diversification on this ETF because the largest holding, Novo Nordisk A/S (NVO) is lower than 3% of the cap-weighted fund, whereas the highest 10 belongings make up simply 20% of the general allocation.

VGK: Holdings & Dividend Data

Seasonally, VGK tends to rally into year-end, as is often the case with broad fairness funds forward of and thru the standard Santa Claus Rally stretch, in keeping with information from Equity Clock. Following the primary two classes of the close to 12 months, although, a lot of Q1 has traditionally been a troublesome interval for European equities. So, utilizing prudence when timing entry and exits over the approaching months is warranted.

VGK: Bullish 12 months-Finish Sample, Dicey Q1 Traits

The Technical Take

With the CAC 40 and Xetra DAX at or close to all-time highs, there has clearly been a big rebound in shares from throughout the pond. Discover within the chart under that VGK scared the bulls earlier this 12 months with a bearish rounded high sample, key assist being within the $55 to $56 zone. Shares held serve, although, and a fast advance in simply the final 7 weeks has helped VGK negate that bullish to bearish reversal signature. Nonetheless, I see resistance on the chart within the $64 to $65 space – that was not solely the excessive level for the 12 months but additionally an vital assist vary from 2021.

However check out the RSI momentum oscillator on the high of the graph – it broke from a bearish downtrend a couple of weeks in the past. It is thought that momentum turns earlier than value, so that could be a optimistic signal as we head into 2024. If we take a step again, we see two extra vital technical options. First, VGK broke its downtrend resistance line off its early 2022 peak a few 12 months in the past, serving to to reverse the pattern. Second, a excessive quantity of quantity by value (as seen on the left aspect of the chart) ought to supply some assist on any close to to intermediate-term pullbacks.

General, VGK’s chart seems more healthy at present, and key assist is seen within the mid-$50s.

VGK: Bearish Rounded Prime Sample Fails, 2023 Highs In Play

The Backside Line

I’ve a purchase ranking on VGK. I like its low valuation and improved momentum. First rate technicals set the stage for a strong 2024.