I have been bullish on European stocks for the better part of a year.
Bearish sentiment at this time last year had reached new highs, and valuations of many stocks on the European exchanges were at new lows. Dividend yields relative to bond yields were also at record wides; the whole focus of the investor community, it seemed, was on capital preservation.
However, this is no longer the case. While analysts are not necessarily wildly bullish, sentiment has definitely changed, especially the outlook for European energy stocks.
Here's a chart courtesy of FactSet that shows the prevailing bullish sentiment on European stocks:
FactSet also provided some commentary on the latest thinking among the European analysts. Here's an excerpt:
Of the 9,863 ratings on MSCI Europe companies at the end of December, 45% were Buy ratings, 38% were Hold ratings, and 17% were Sell ratings.
At the end of 2012, one sector in the MSCI Europe index had both the highest percentage of Buy ratings and the largest upside difference between the bottom-up target price and the closing price for the sector: Energy.
Still, with memories of the 2008 -09 market meltdown still weighing heavily on the investor community, analysts still seem cautious on most sectors other than energy.
Which means, in my opinion, that the "pain trade" is to higher prices.