Since the Major League baseball season is entering the mid-summer doldrums, we amuse ourselves every morning with the financial pages instead of the sports updates. And the play-by-play from Europe rivals any MLB division race. Will tough stalwart Angela Merkel hold off the aging southern European challengers, whose entire populations seem on the verge of a team-wide retirement at the ripe old age of 50? The story line changes daily and Greece either is, or is not, going to exit the Euro. Banks in Spain are on the verge of collapse — or maybe not. A recent $100 billion Euro infusion of fresh talent (in the form of cash) has given a mid-season jolt to the lineup.

Much as NASCAR fans can’t tear their eyes away from a crash, we value-inclined analysts here at Creekside are drawn to bad news cycles. When the news is unrelentingly bad, asset classes often get oversold. We began to look more closely at the stocks of large Europe-based companies that do business much like their American counterparts — all over the globe. Two things attracted us to this group. First, corporate earnings can and do adjust over time to currency movements. In other words, Euros might move higher or lower than Dollars, but earnings growth rates, when converted to either currency, will even out after adjusting for inflation. This is given enough time of course; as value investors we sometimes have to be patient for such corrections.

The second feature of this group is that their earnings are not tied solely to the Euro zone. Europe could have a slowdown and the earnings on these biggest companies could carry on and even recover more quickly than the Eurozone itself. In fact, that very thing happened on this side of the pond with our largest companies. Over time, the stock prices of an index of large European companies should roughly track an index of large American companies, when examined in the relevant currency. In the chart below, we track an index of large European companies (the ETF, “FEZ”) as measured in Euros, and compare it to the familiar S&P500 as measured in dollars.

The two indices do, in fact, track quite nicely. Until recently that is. A gap between the two of more than 40% has opened in the last 18 months. This is a classic value opportunity. This basket of 50 European stocks is trading at an approximate 40% discount to US stocks, and carries a dividend yield nearly three times that of the S&P500.

We are in the process of adding FEZ to most client accounts. We look to build positions of 3% to 10%, depending on client objective. As with any value-driven investment decision, this could take time to perform for us. But we have learned many times over the years that, if you pay the right price for an asset, time is on your side.