It seems that European stocks are at their cheapest levels in six years and the French and German stocks top the list of bargains on the continent.

According to Bloomberg, the XETRA DAX and France’s CAC 40 are the least expensive of the world’s 10 biggest markets. But let’s not get carried away just yet… markets are often said to be cheap when stocks have fallen, rather than the preferential scenario where huge profit growth has been missed by the market. We’re seeing the prior here, falls in earnings and a bearish turn in sentiment.

First-quarter corporate profits in Western Europe dropped 25%, even worse than US firms! “The U.S. has been at the epicentre of the problems, but the shockwaves are more felt here in the euro zone. Cheap valuations are a direct result,” said fund manager Franz Wenzel.

Despite this, the contrarian club is unshaken… is it time to buy?

Well, according to Anthony Bolton, the negativity can act as a cloak to sneak in and pick up the real pearls. It is always difficult to buy recovery stocks, but it’s when stocks are at their most unloved is where the biggest rewards can be had. Do your buying in a bear run, and superior returns can be yours.

It’s this belief that propelled Warren Buffett onto a shopping tour of Europe in recent weeks, with a focus on Germany.

“We would like more family owners of Germany businesses who, when they feel some need to monetize their business, to think of Berkshire Hathaway,” said Buffett.

“We are happy to invest in businesses that earn their money in the euro, or in companies that derive their earnings in Germany, or from sterling in the U.K. because I don’t have a feeling that those currencies are going to depreciate in a big way against the dollar,” added the world’s most successful investor.

And he might be onto something… Ben Traynor at the Fleet Street Letter tells me that companies in the French and German markets are trading at a 40% discount to those in the American S&P 500. It’s a market packed with right bobby dazzlers.

So, why the weakness?

Profit warnings left-right-and-centre is why. Not just in banking, neither. Nokia, SAP, InBev, Roche are all firms that have fallen short of expectations through the tumultuous earnings season. It’s not just poor headline figures, but weak outlooks that really put the fear of god into investors. Commodity prices and inflation is soaring, knocking input costs while demand is set for a tumble as buyers grapple with the increasingly pricey Euro.

Though it could have been a lot worse. Earnings in the first quarter fell 18% but were odds-on to fall 23%. And, if you strip out the performance of financial firms like UBS and Deutsche Bank, the first quarter would have actually been in-the-money.

Big banks still see Europe slightly higher for the year, and back in double-digit growth for 2009. Too optimistic? Reasons to be cautious? Probably, but given the discount that shares on the continent trade at, it looks to be worth the risk.

We tend to find more value opportunities in a bearish market, and this is no exception. Whilst it can be emotionally difficult to pick up companies that have been receiving a bad press, if you can justify the purchase in value and growth then you go with your convictions.

Deutsche Bahn steams into the picture

And here’s the newest stock on offer… Deutsche Bahn, Europe’s biggest rail group, is en route to be one of the biggest stock market listings of the year, set for a £6.4 billion initial public offering (IPO).

The German rail operator is set to list on the DAX with Deutsche Bahn itself to control most of the consideration with a 25% stake selling in the IPO. The launch is set for the end of the year and should reassure investors that there is still a market, and hopefully an appetite for new listings amid the credit crunch.

Nonetheless, I’m not a fan of IPOs. I subscribe to the Ken Fisher school of thought that IPO should stand for ‘It’s Probably Overpriced.’ This is based on the frequent share price capitulations that follow the initial ‘stabilisation’ or honeymoon period &mdahs; where newly listed companies shares are bought by investment banks to prop up the price in the early days. When this support subsides, the shares invariably take a tumble.

More important than the investment case of Deutsche Bahn is that, like Visa in the US, the gesture will give heart to the investment community. It serves as evidence of life after the credit crunch. When shares are trading as cheaply as they are now, it may be the best time to stock-up on shares across the border.

The sharp cookies over at The Fleet Street Letter have not been MIA on European opportunities… our portfolio includes a Paris-listed gem that has outperformed the market by nearly 30% since our tip in 2007. With property rights in the South of France, it has profited from high-net-worth individuals and looks set to continue…

Theo Casey Source: The Value Investor’s Stock Market

At midday in New York, the blue-chip Dow Jones Industrial Average Index was down 76.86 points (-0.60%), to trade at 12,748.16. The tech-laden Nasdaq Composite Index shed 17.41 points (-0.72%), to reach 2,390.63. And the broader Standard & Poor’s 500 Index decreased 8.41 points (-0.61%), to hit 1,379.76.

Most sectors were down, with the energy sector (up 0.43%) and the basic materials sector (up 0.08%) posting the only gains. The consumer cyclical sector (down 1.75%) and the technology sector (down 1.12%) had the largest declines.

“Earnings and earnings estimates are coming down,” Mike Ryan, the New York-based head of wealth management research for the Americas at UBS Financial Services Inc., which oversees about $734 billion, said in an interview on Bloomberg Television. “We’re likely to see stocks continuing to be under pressure” in the first half of 2008.

Despite a 24% increase in profit, McDonald’s Corp. (MCD) slumped after it announced a slight decrease in same-store sales for March.

Shares of UnitedHealth Group Inc. (UNH) and Texas Instruments Inc. (TXN) were also down sharply after announcing first quarter results.

In overseas markets earlier today, Japan’s Nikkei 225 Index lost 1.1% with a decrease of 148.73 points to close at 13,547.82. Hong Kong’s blue-chip Hang Seng Index gained almost 1% with a 217.48-point climb, to 24,939.15.

European bourses were down, with the Paris-based CAC40, London’s FTSE 100, Madrid’s IBEX 35 and the Frankfurt-based DAX all posting losses.

At midday, the dollar had lost ground against the euro (down 0.457%) and the pound sterling (down 0.812%), but gained ground against the yen (up 0.204%).

At midday in New York, the blue-chip Dow Jones Industrial Average Index was down 40.87 points (-0.32%), to trade at 12,578.40. The tech-laden Nasdaq Composite Index dropped 20.58 points (-0.88%), to reach 2,329.53. And the broader Standard & Poor’s 500 Index decreased 6.31 points (-0.46%), to hit 1,358.40.

Most sectors were down, with the transportation sector (down 1.31%) posting the largest decline.

“Analysts are expecting a pretty dour earnings season, and so are portfolio managers,” Charles Reinhard, director of portfolio strategy at Neuberger Berman, a unit of Lehman Brothers Holdings Inc. (LEH) that manages $129 billion, said in a Bloomberg Television interview. “The market is discounting a lot.”

Pharmaceutical firm Pfizer Inc. (PFE) dropped after announcing a 19% drop in first quarter profits as generic drugs continue to take a hit on the drug giant’s bottom line.

But blue-chip technology stock, International Business Machines Corp. (IBM), gained after the Dow component announced a 26% increase in first quarter profit, beating analyst estimates, and boosted its outlook for full-year 2008.

“IBM beat revenue and earnings expectations substantially with strength across the board,” American Technology Research Analyst Shaw Wu told MarketWatch. “We find this quite impressive in light of the tough economic environment.”

In overseas markets earlier today, Japan’s Nikkei 225 Index gained 1.9% with an increase of 252.17 points to close at 13,398.30. Hong Kong’s blue-chip Hang Seng Index rose 1.6% with a 380.61-point increase, to close at 24,258.96.

In Europe, most major bourses were down, with London’s FTSE 100, Madrid’s IBEX 35 and the Frankfurt-based DAX all posting losses. Only the Paris-based CAC40 managed to eke out a slight 7.04-point gain.

At midday, the dollar had gained ground against the euro (up 0.251%) and the yen (up 0.778%), but lost ground against the pound sterling (down 0.811%).

“On Friday, we had the bad surprise from [General Electric Co. (GE)],” Ken Tower, chief market strategist at Covered Bridge Tactical, told MarketWatch. “But this week, we’re seeing investors pleasantly surprised that earnings overall are not as bad, supporting the view of a shallow economic decline instead of a more severe one.”

At midday in New York, the blue-chip Dow Jones Industrial Average Index was up 179.37 points (1.45%), to trade at 12,541.84. The tech-laden Nasdaq Composite Index gained 48.43 points (2.12%), to reach 2,334.47. And the broader Standard & Poor’s 500 Index increased 18.68 points (1.40%), to hit 1,353.11.

All sectors were up, with the basic materials sector (up 3.02%) and the technology sector (up 2.55%) posting the largest gains.

Intel Corp. (INTC) shares got a boost from strong first quarter sales results in Asia and Europe. Sales increased 9.3% to $9.67 billion, beating analyst estimates.

“These big market-share multinationals are still benefiting from economic growth outside the U.S.,” Keith Wirtz, Cincinnati-based chief investment officer at Fifth Third Asset Management, told Bloomberg News. “It tells me conditions are not all that bad on a global basis.”

March industrial production also rose slightly for the month with a 0.3% increase.

“The manufacturing sector may not be expanding but it is not contracting either, which is good news,” Joel Naroff, president and chief economist of Naroff Economic Advisors, said in a note to clients today.

In overseas markets, Japan’s Nikkei 225 Index gained 1.2% with an increase of 155.55 points to close at 13,146.13. Hong Kong’s blue-chip Hang Seng Index was relatively flat with a 22.98-point drop, to close at 23,878.35.

The FTSEurofirst 300 index of top European shares gained 1.6%. Other major European bourses were up, with the Paris-based CAC40, London’s FTSE 100, Madrid’s IBEX 35 and the Frankfurt-based DAX all posting gains.

At midday, the dollar had lost ground against the euro (down 1.072%), the yen (down 0.010%) and the pound sterling (down 0.785%).

At midday in New York, the blue-chip Dow Jones Industrial Average Index was down 25.57 points (-0.21%), to trade at 12,276.49. The tech-laden Nasdaq Composite Index dropped 6.65 points (-0.29%), to reach 2,269.17. And the broader Standard & Poor’s 500 Index decreased 3.31 points (-0.25%), to hit 1,325.01.

The basic materials sector (up 0.87%) and the conglomerates sector (up 0.61%) posted the biggest gains, while the capital goods sector (down 0.42%) and the technology sector (down 0.49%) posted the largest declines.

“The market is digesting the whole banking and financial issues, but the market has still to digest the recession story and how much of a damage to earnings we’ll get,” Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank AG (DB), told MarketWatch.

Tech shares such as Dow-component International Business Machines Corp. (IBM) and Cisco Systems Inc. (CSCO) were down. Intel Corp.’s (INTC) earnings release is slated for after the market the closes this evening.

Oil futures traded near $114 a barrel, boosting energy stocks such as Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX).

In overseas markets early today, Japan’s Nikkei 225 Index gained 0.6% with an increase of 73.07 points to close at 12,990.58. Hong Kong’s blue-chip Hang Seng Index inched up 0.4% with a 90.13-point gain, to close at 23,901.33.

European bourses were up, with the Paris-based CAC40, London’s FTSE 100, Madrid’s IBEX 35 and the Frankfurt-based DAX all posting slight gains.

At midday, the dollar had gained ground against the yen (up 0.486%) and the pound sterling (up 0.540%), but lost ground against the euro (down 0.051%).

GE’s stock dropped more than 11%, and was trading at $32.50 shortly after noon EDT.

At midday today in New York, all three of the key U.S. stock indices were down by more than 1%.

The blue-chip Dow Jones Industrial Average Index was down 146.31 points (-1.16%), trading at 12,435.67. Of the 30 stocks in the Dow, 26 were down. The tech-laden Nasdaq Composite Index fell do 2,318.89, a drop of 32.81 points, or 1.4%. And the broader Standard & Poor’s 500 Index skidded 15.08 points (-1.11%), to hit 1,345.47.

The S&P is down 2.1% for the week, as this morning’s sell-off extended the worst weekly decline in a month.

The transportation sector (up 0.14%) posted the only gain, while the conglomerates sector that GE is part of had the biggest decline, plunging 5.60%.

“We are seeing the collateral damage to the economy,” Bill Strazzullo, chief market strategist at financial advisory firm Bell Curve Trading, said in an interview with Bloomberg Television. “We saw this with retail sales, consumer confidence, now we are seeing this with the General Electric earnings. When you look at this from the vantage point on the effect of the broader economy, things are getting worse.”

GE – the world’s third-largest company by market value – reported a 6% decline in its first-quarter profit, due mostly to trouble in the financial divisions that are part of its massive GE Capital unit. Net income dropped to $4.3 billion, or 43 cents per share, while revenue increased 8% to $42.24 billion.

According to FactSet Research, the mean analyst expectation for profit from continuing operations was 51 cents per share. GE reported just 44 cents per share, which caused its shares to tumble.

In overseas markets earlier today, Japan’s Nikkei 225 Index surged 378.43 points to close at 13,323.73. Hong Kong’s blue-chip Hang Seng Index had a 480.69-point gain, and closed at 24,667.79.

European bourses were down, with the Paris-based CAC40, London’s FTSE 100, Madrid’s IBEX 35 and the Frankfurt-based DAX all posting losses.

At midday, the dollar had gained ground against the yen (up 0.216%), but lost ground against both the euro (down 0.449%) and the pound sterling (down 0.086%).

At midday in New York, the blue-chip Dow Jones Industrial Average Index was up 92.42 points (0.74%), to trade at 12,619.68. The tech-laden Nasdaq Composite Index gained 34.57 points (1.49%), to reach 2,356.69. And the broader Standard & Poor’s 500 Index increased 9.73 points (0.72%), to hit 1,364.22.

The technology sector (up 1.23%) and the transportation sector (up 0.92%) posted the biggest gains, while the utilities sector (down 0.24%) and the basic materials sector (down 0.12%) posted the only declines.

“Bigger picture, we’re still in a trading range for the most part. Folks are still trying to figure out which direction we’re headed, and investors are waiting for more earnings reports to see where the economy stands and where the sectors are headed,” Robert Pavlik, chief investment officer at Oaktree Asset Management told MarketWatch.

Wal-Mart Stores Inc. (WMT) gained after bargain hunters helped the retail giant beat sales estimates, and an upgrade by Bank of America Corp. (BAC) gave Intel Corp. (INTC) stock a boost.

Financial shares, such as Citigroup Inc. (C) and Wachovia Corp. (WB), rallied after Goldman Chief Executive Officer Lloyd Blankfein said “we’re closer to the end than the beginning” of the credit crisis, Bloomberg News reported.

In overseas markets early today, Japan’s Nikkei 225 Index lost 166.59 points to close at 12,945.30. Hong Kong’s blue-chip Hang Seng Index had a 202.53-point gain, to close at 24,187.10.

European bourses were down, with the Paris-based CAC40, London’s FTSE 100, Madrid’s IBEX 35 and the Frankfurt-based DAX all posting losses.

At midday, the dollar had gained ground against the euro (up0.165%), but lost ground against the yen (down 0.552%) and the pound sterling (down 0.253%).

At midday in New York, the blue-chip Dow Jones Industrial Average Index was down 45.43 points (-0.36%), to trade at 12,567.00. The tech-laden Nasdaq Composite Index decreased 12.87 points (-0.54%), to reach 2,351.96. And the broader Standard & Poor’s 500 Index shed 5.84 points (-0.43%), to hit 1,366.70.

“We’ll be lucky to see earnings be flat for the year and we’ll probably see earnings decline,” Steven Bleiberg, who helps manage about $6 billion as head of global investment strategy at Legg Mason Asset Management (LM) in New York, said in an interview with Bloomberg Television. “Ultimately you’ve got to have earnings growth, that’s the driver, and I just don’t see it happening. There are so many negative signs out there.”

Washington Mutual Inc. (WM) led financial shares lower as the thrift was forced to slash its dividend even after a $7 billion cash infusion, which was more than the $5 billion expected.

Aluminum manufacturer Alcoa Inc. (AA) dropped after announcing a 50% reduction in earnings after Monday’s close. Advanced Micro Devices Inc. (AMD) shares dropped after announcing a 22% decline in sales.

“Ultimately we’re still in a bear market, and it’s going to take some more digestion and some more sideways movement to get out,” Doug Sandler, chief equity officer at Riverfront Investment Group, told MarketWatch.

In overseas markets, Japan’s Nikkei Index reversed Monday’s gains with a loss of 199.80 points to close at 13,250.43. Hong Kong’s blue-chip Hang Seng Index had a 267.07-point decline, to close at 24,311.69.

European bourses were down with the Paris-based CAC40, London’s FTSE 100, Madrid’s IBEX 35 and the Frankfurt-based DAX all posting losses.

Source:http://www.moneymorning.com/2008/04/08/midday-market-update-stocks-head-lower-on-weak-first-quarter-earnings/

At midday in New York, the blue-chip Dow Jones Industrial Average Index was down 8.72 points (-0.07%), to trade at 12,617.31. The tech-laden Nasdaq Composite Index increased 6.72 points (0.28%), to reach 2,370.02. And the broader Standard & Poor’s 500 Index rose 3.29 points (0.24%), to hit 1,372.60.

The basic materials sector (up 1.68%) and the energy sector (up 1.10%) posted the biggest gains, while the consumer cyclical sector (down 1.01%) and the financial sector (down 0.46%) posted the largest declines.

Payrolls declined for the third straight month as U.S. employers shed 80,000 jobs, more than forecast, the Labor Department announced today (Friday). Unemployment increased in March to 5.1% from 4.8% last month and is now at its highest level since September 2005.

“After three consecutive months of job losses, it is hard to argue that we are not in a recession,” Joel Naroff, president and chief economist of Naroff Economic Advisors said today in a note to clients.

But market response to the news was subdued, as investors seem inclined to wait for first quarter earnings reports.

“The market is reacting well to what two months ago would have been disastrous news, but that may change after next week, when we get news from corporate America and what they think for the rest of the year – we may see some estimate guide-downs,” Art Hogan, chief market strategist at Jefferies & Co., told MarketWatch.

In overseas markets, Japan’s Nikkei Index shed 96.68 points to close at 13,293.22. Hong Kong’s blue-chip Hang Seng Index had a 392.20-point increase, to close at 24,264.63 on Thursday. The Hong Kong markets are closed today (Friday) for the Ching Ming Festival, a public holiday and will reopen on Monday.

European bourses were mostly flat with the Paris-based CAC40, London’s FTSE 100, Madrid’s IBEX 35 and the Frankfurt-based DAX all posting only slight gains.

At midday, the dollar had lost ground against the euro (down 0.540%), the yen (down 0.529%) and the pound sterling (down 0.015%).

Early morning losses were due to the high number of initial jobless claims and talk of a U.S. recession from Federal Reserve Chief Ben S. Bernanke in his second day of testimony before the Joint Economic Committee.

At midday in New York, the blue-chip Dow Jones Industrial Average Index was down 41.52 points (-0.33%), to trade at 12,564.31. The tech-laden Nasdaq Composite Index increased 9.22 points (0.39%), to reach 2,371.97. And the broader Standard & Poor’s 500 Index rose 2.30 points (0.17%), to hit 1,372.48.

The basic materials sector (up 1.39%) and the energy sector (up 1.01%) posted the biggest gains, while the conglomerates sector (down 0.94%) and the consumer cyclical sector (down 0.95%) posted the largest declines.

Shares of Exxon Mobil Corp. (XOM) and seed producer Monsanto Co. (MON) gained as oil prices climbed and corn rose to a record high.

Initial jobless claims for the week ended March 29 jumped by 38,000 to reach 407,000, marking the highest level seen for this economic indicator since mid-September 2005, MarketWatch reported.

In overseas markets, Japan’s Nikkei Index gained 200.54 points to close at 13,389.90. Hong Kong’s blue-chip Hang Seng Index had a 392.20-point increase, to close at 24,264.63.

European bourses reversed a two-day streak of gains with the Paris-based CAC40, London’s FTSE 100, Madrid’s IBEX 35 and the Frankfurt-based DAX all posting slight losses.

At midday, the dollar had gained ground against the euro (up 0.224%) and the yen (up 0.157%), but lost ground against the pound sterling (down 0.456%).