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By Russel Kinnel | 01-22-2013 11:00 AM

Why Europe Is the Investment Opportunity of a Generation

The weak European economy is allowing firms to unlock extra value via restructurings and spin-offs, but it's better to invest while firms are still cheap conglomerates, says Evermore's David Marcus.

Russ Kinnel: Hi, I’m Russ Kinnel, director of mutual fund research for Morningstar. I’m joined today by David Marcus of Evermore Global. David is a veteran of Mutual Series funds from the 1990s and early 2000s, and he launched Evermore Global about three years ago.

David, thanks for joining us.

David Marcus: Thank you.

Kinnel: A few months ago you wrote a paper saying, Europe is the investment opportunity of a generation. Can you tell us a little about what you're thinking there?

Marcus: Sure. The situation in Europe is that investors have really been panicking over the last couple of years because of the financial crisis they've been going through. It's a real deep crisis that has really knocked these countries sort of out of commission, but I think they're knocked out in the short run, not in the long run. And I believe that companies are taking advantage of this crisis in unprecedented ways.

There is a restructuring wave that's going on. There are breakups of conglomerates that are deconglomerating. The rules and regulations are changing in different countries to allow the companies to streamline a little easier in a lower cost because the governments have realized whereas in the past they were so focused on employee, employee, employee and put people to work, now they realized if they don’t help save their companies, they may not be able to save people jobs. And so the rules are changing, the regulations are changing, and these companies are changing the way they do business.

For example, look at the large company, Siemens, the big German company. They're closing facilities. They're streamlining operations. They're embracing the fact that there is a crisis and taking it to the next level, so that they can be much more competitive versus the global competitors. That's just the tip of the iceberg. It's big companies like that. Its companies like Fiat in Italy. Their factories are working at 25% of capacity, it's not profitable.

So, they're pushing back on the unions, and in this environment they can do it. So, I think it's an amazing time to be looking at Europe because I have less competition than I have had in years because most investors have really run out. They don't want to take the time to focus on it, and that's when you get your best investments when others are in panic mode or they're just not focusing on it.

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