The Eurozone’s economy picked up pace over the year’s last quarter, according to data released last week. Additionally, fresh indications emerged that inflation has increased, which comes as good tidings for the ECB. Meanwhile, Germany’s central bank’s president said that the ECB’s decision to reduce the size of its bond purchases indicates its growing confidence in the region’s economy.

Evidence of this nature lends further weight to the view that the Eurozone is fast regaining its attractiveness as an investment destination. Adding stocks of companies from the region looks like a smart option at this point.

Encouraging Data Raises Optimism

IHS Markit’s composite PMI for the region’s service providers and manufacturers remained flat at 53.9 for the month of December. Any reading higher than 50 signifies an increase in economic activity. This reading sent the average for the year’s last quarter above that of preceding quarters, implying that the economy expanded by 0.4% over the third quarter. This is higher than the pace of 0.3% recorded for the quarter ended September.

Additionally, the survey also revealed that businesses increased their prices at the sharpest pace in five and a half years in December. This comes as welcome news to the ECB, which is eager to boost inflation toward the target level of just below 2%. For nearly four years now, the economic bloc’s central bank has fallen short of its inflation target.  

ECB Decision Reflects Increasing Confidence

Meanwhile, on Dec 19, Germany’s Bundesbank’s President Jens Weidmann said the ECB’s decision to reduce the size of its bond purchases is a signal that policymakers believe the region’s economy is improving. Earlier this month, the ECB decided that it would extend its bond-purchasing program at least until December of next year. However, the Eurozone’s central bank also decided to cut the volume of bond purchases from 80 billion euros ($86 billion) per month to 60 billion euros from next April.

According to Weidmann, the decision indicates that the ECB’s governing council believes that the economic recovery in the region has strengthened. Weidmann is a long standing critic of the bond purchase program. He believes that the ECB’s policy stance will loosen automatically as inflation picks up pace, lowering the rate of real interest. Annual inflation has rebounded from the low hit earlier in the year to hit 0.6% in November.

Weidmann also said that keeping interest rates low over the long term was unsustainable. Monetary stimulus may help in rescuing an economy from the doldrums, but it also runs the risk of endangering the health of banks and insurance companies when extended over long periods. 

Our Choices

After having traversed through a particularly difficult period, the Eurozone’s economy is now looking to pick up its pace. Recently released economic data and comments from key central bank figures lend further weight to such a view.

Picking select stocks from the economic bloc makes for a prudent decision at such a juncture. We have narrowed down our search to the following stocks based on a good Zacks Rank and other relevant metrics.

Deutsche Lufthansa Aktiengesellschaft (DLAKY - Free Report) operates as an autonomous unit within the Lufthansa Group. Headquartered in Cologne, Germany, it maintains its own stations, handling check-in, ticket sales and other services at all the major international airports.

Lufthansa has a Zacks Rank #1 (Strong Buy). Its earnings estimate for the current year has improved by 2.6% over the last 30 days. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 4.89, lower than the industry average of 10.35.

Societe Generale Group (SCGLY - Free Report) is the sixth largest bank in the Eurozone. The company is based in Paris, France.

Societe Generale’s expected earnings growth of 9.6% for the current year. Its earnings estimate for the current year has improved by 6% over the last 60 days. The stock has a Zacks Rank #1. 

Credit Agricole S.A. (CRARY - Free Report) markets a complete range of financial products and services. The company is based in Paris, France.

Credit Agricole has a Zacks Rank #2 (Buy). It has a P/E (F1) of 8.78, which is lower than the industry average of 11.63. Its earnings estimate for the current year has improved by 75% over the last 30 days.

Telecom Italia S.p.A. (TI - Free Report) is engaged principally in the communication sector and operates mainly in Europe, the Mediterranean Basin and South America. The company is based in Rome, Italy.

Telecom Italia has a Zacks Rank #2. The company has expected earnings growth of 71% for the current year. It has a P/E (F1) of 10.21, which is lower than the industry average of 14.84.