Investors, it’s time to break out your passports.
Fear over slowing US economic growth as well as volatility in Big Tech stocks have converged to wipe out trillions of dollars in value and helped fuel an unlikely winner this year—European stocks. So far in 2025, the S&P 500 has fallen 4.5% while Europe’s unloved stocks are suddenly soaring. The S&P Europe 350 index is up 10%. German stocks, as measured by the DE40 Index, have risen nearly 25%.*
Forget about Make America Great Again (MAGA), says T. Rowe Price’s foreign stock expert Sebastian Schrott. Pay attention instead to Make Europe Great Again (MEGA).
Maybe you threw in the towel years ago on international stocks, and who could blame you? Foreign stocks have done little to diversify a portfolio, and they badly underperformed the US stock market. A $10,000 investment in the S&P 500 at the end of 2008 would be worth more than $92,000 today. The same amount invested in European shares would be about $33,000. (In both hypotheticals, dividends have been reinvested.)
Still, Schrott thinks this year’s dizzying turn of events is a reminder that international markets are cyclical in the long run, and the strategy of diversifying your portfolio with some overseas exposure isn’t dead money. Stocks of European companies now have some surprising growth potential, as well as vastly cheaper valuations than the pricey US market. Schrott does warn that you still need to be selective because European stocks do face challenges. The Eurozone ended 2024 with zero economic growth in the fourth quarter, and it is uncertain how Europe’s multibillion-dollar trade war with President Trump will play out.
Bottom Line Personal asked Schrott to explain why European stocks are doing so well and the best ones to consider now…
In just a matter of months, President Trump’s administration has upended decades of geopolitical and economic precedent. His “America First” policies include a barrage of tariffs on steel, aluminum and other imported goods from many nations…threats to withdraw US military support from NATO unless Europe pays, what President Trump calls, its “fair share”…and forcing a quick end to the Ukraine-Russian war. These policies have unexpected implications for the rest of the world. The most striking has been pushing Europe toward aggressive, pro-growth fiscal policies even if it means large deficits and debt issuance. Among the powerful catalysts I see for European stocks now…
The European Union’s total defense spending is likely to rise from 2% to 3.5% of gross domestic product (GDP) over the next several years, boosting its aerospace and defense industries.
An end to the three-year conflict could lower European energy costs, especially the price of natural gas if supplies from Russia resume. Massive reconstruction in Ukraine would generate nearly a half-trillion dollars in new engineering and construction work over the next decade. Perhaps most importantly, it could also lift consumer confidence and business sentiment across Europe, kick-starting economic growth more broadly.
The German stock market hit an all-time high for the first time in 18 years. That happened after the largest economy in Europe committed almost $1 trillion in new spending to infrastructure and defense. This historic shift overhauls Germany’s notoriously tight limits on government borrowing.
I expect that the Bank of England and the European Central Bank could cut interest rates more aggressively than the Federal Reserve. Lower borrowing costs and reduced fiscal drag will be stimulative to the economy and pull more investors into European stock markets.
My big concern as a stock picker is that Europe’s recovery will be tested by rising global-trade tensions. Tariffs with the US could curtail growth and reignite inflation at this vulnerable stage in the region’s recovery. That’s why I look for high-quality global companies headquartered in Europe that are able to weather a trade war. They should have strong pricing power, sustainable profit margins and seasoned management. I also look for attractive share-price valuations and specific drivers that can boost earnings growth. The following stocks meet all of these criteria…
ASML Holdings (ASML). This is the most important European company you may never have heard of. Based in the Netherlands, ASML had a near-monopoly on the manufacture of ultraviolet lithography equipment, a crucial technology for developing the world’s smallest and most advanced semiconductor chips for artificial intelligence (AI). ASML machines optically etch circuit patterns onto silicon wafers, producing chips as small as two-billionths of a meter. The machines can cost nearly $200 million each for such clients as Taiwan Semiconductor, Samsung and Intel. ASML has faced a cyclical slowdown in the semiconductor industry, and valuations have been squeezed by concerns over tighter export curbs against Chinese chipmakers. But I think ASML will recover strongly thanks to the booming demand for processing power needed to run AI applications and further technological innovation in the next generation of its machines. Recent share price: $731.11.
Airbus (EADSY) is the largest aeronautics firm in Europe. The company (headquartered in the Netherlands as a corporation but based in France operationally), along with Boeing, form a global duopoly manufacturing large commercial airliners. Demand is strong as airlines try to upgrade their fleets after years of COVID-19 underinvestment. Airbus has benefitted from Boeing’s recent quality-control issues with its 737 MAX jet and the forced departure of its CEO. As a result, Airbus’s order backlog has swelled to more than 8,600 aircraft, providing the company with great revenue visibility for the rest of this decade. Another reason to like Airbus stock: The change in European defense spending. About 25% of the company’s revenues comes from defense and helicopter manufacturing, including the A400M Atlas, a tactical airlifter critical to NATO members, and the Eurofighter Typhoon jet used by European and Middle Eastern air forces. Recent share price: $47.10.
AstraZeneca (AZN). The British pharmaceutical giant has 12 blockbuster medicines exceeding $1 billion in annual sales, including the lung cancer treatment Tagrisso and the type 2 diabetes treatment Farxiga. AstraZeneca set an ambitious target to nearly double annual revenue to $80 billion by 2030. I think that’s achievable given that the drugmaker has nearly 200 treatments in development, including 21 compounds in late-stage clinical trials—an almost unrivalled, rich pipeline of future products. Recent share price: $77.07.
ING Groep (ING). European bank stocks have seen their shares rally strongly this year, thanks to an improved interest rate outlook, a more stable regulatory environment and the possible benefits of any uptick in European economic growth. This Dutch financial-services company is one of the continent’s most appealing operations with more than 53 million customers and a dominant market share in retail deposit accounts and business lending in the Netherlands and Belgium. The recent dividend yield is a robust 5.8%, and we expect share buybacks to meaningfully complement this. Recent share price: $20.48.
SAP (SAP). Founded by former IBM employees, the German technology firm is the world’s largest provider of business application software to manage supply chains, customer relations, procurement, and travel and expenses. SAP operates in over 180 countries and has more than 400,000 customers. Although SAP has trailed American competitors in transitioning to a cloud-based business model, the change should drive double-digit annual revenue growth in the coming years. SAP is also leveraging AI to make its software offerings more effective for customers. Recent share price: $270.64.
Sartorius Stedim Biotech (SDMHF). Only one in 10,000 potential drug candidates makes it to the market as a new treatment, and that typically takes 10 to 15 years and thousands of lab experiments. This steady-growing French firm provides high-tech medical products for the global biopharmaceutical industry that accelerate clinical pipelines and antibody discovery, increase drug-manufacturing efficiency and reduce costs. It has a strong focus on single-use products such as filters and reagents, with recurring business representing around three-quarters of revenues. It has a truly global presence and has recently added facilities in the US and South Korea. Recent share price: $226.68.
TotalEnergies (TTE), a French energy company, produces more than 1.6 million barrels of oil and five billion cubic feet of natural gas per day with drilling sites in Brazil and Africa. The global giant also owns refineries and distributes oil, gas and specialty chemicals in 65 countries. What really distinguishes TotalEnergies is its operational excellence and diversification. The company will continue to grow its carbon-fuel production near term, especially liquid natural gas, which is cleaner and cheaper than other fossil fuels. At the same time, TotalEnergies is using free cash flow to acquire wind and solar operations to become a leader in the clean-energy sector. The company expects its renewable and electricity portfolio to generate over $4 billion in cash flow by 2028. The stock offers a hefty 5.4% recent dividend yield—again almost doubled by share buybacks. Recent share price: $63.33.
*All performance figures are from Morningstar, Inc., as of March 18, 2025. For current pricing, go to Morningstar.com. Bottom Line Personal recommendations are meant for five- and 10-year horizons—not for immediate profits.
