Salient to Investors:

The Euro Stoxx 50 Index is at 12.5 times projected earnings, versus 15.3 times projected earnings for the S&P 500 and 14.2 times income for the Topix.

Bulls say European stocks are cheap as the first expansion for euro-area manufacturing in 2 years helps drive forecasts for profit growth of more than 10 percent in 2013 and 2014. Bears cite concern that next month’s German election may lead to tougher austerity measures in Europe’s weakest economies.

Kerry Craig at JPMorgan Asset Mgmt said stocks are relatively cheaper than the last time the euro zone was improving. In 2009, the Euro Stoxx 50 was at 13.4 times projected profit versus the S&P 500 at 17.5 times estimated income in Q4 2009, and the Topix at 35.1 times forecast earnings.

The average strategist expects European stocks to rise another 3.5 percent by year-end versus a 0.9 percent fall in the S&P 500 according to a separate poll.

Nader Naeimi at AMP Capital Investors said European equities offer better value than other developed markets: a lot of good news is already priced into US stocks, whereas in Europe we’re restarting a recovery and should see tangible results coming in by year-end or early 2014.

The median economist expects the euro-area economy to grow 0.2 percent oin Q4 2013 growth in the final three months of 2013.

Pierre Lapointe at Pavilion Global Markets said European fiscal austerity is receding, and most European countries will see a significant reduction of fiscal tightening in 2014, removing a large headwind to aggregate demand.

Andreas Hoefert at UBS Wealth Mgmt prefers the US to Europe, saying they are still not out of the woods with the coming German election, while anti-Europe rhetoric may come back into play.

Andrew Milligan at Standard Life Investments said economic reports indicate Europe will return to growth, but the recovery may be too weak to boost earnings – fewer negatives for European equities than in the past, but not many positives. Milligan said valuations are very supportive, but it is difficult to see any knock-out figures to justify overweighting European equities.

Henk Potts at Barclays Wealth & Investment Mgmt said the worst days of the fiscal crisis are over and investors should allocate more to European equities since the risks involving the euro zone have been reduced.

Analysts project profits will climb 29 percent for Euro Stoxx 50 companies in 2013 and 13 percent in 2014. The Euro Stoxx 50 is at 1.31 times book value versus 2.49 for the S&P 500.

David Herro at Oakmark Intl Fund said European stocks are more undervalued than US or Japanese equities, and is seeing signs of stabilization.

Andrew Garthwaite at Credit Suisse upgraded continental European equities to overweight and said financial firms and companies most reliant on economic growth have the biggest potential for gains, and recommends media, airline, banks and software companies.

The S&P 500 has recovered all of the losses from the global financial crisis, while the Euro Stoxx 50 is 38 percent below its July 2007 peak, the IBEX 35 is 45 percent below its November 2007 high, and Italy’s gauge is 61 percent lower May 2007.

Francois Savary at Reyl & Cie said Europe may surprise within the global economic recovery and the stabilization is coming earlier than expected, so there is good potential for equities in the next six to 12 months.

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