Europe has lagged the US since the financial crisis but within the region are some gems that are undervalued when compared with direct US competitors, according to industry experts.
While the US market has gone from strength-to-strength over the last decade, Europe has lagged thanks to the worsening debt situation in Greece and concerns over the stability of the European Union.
Performance of indices over 10yrs
Source: FE Analytics
But within these markets, many similar companies have become over or undervalued based on their peer group.
Graham Campbell, chief executive of Saracen Fund Managers, said: “We’ve been buying more in European businesses and we’re generally indifferent to the domicile because if you look at a Nestle, Unilever and Procter & Gamble frankly they are all global businesses.
“It doesn’t really matter if they are based in Switzerland, the UK, the Netherlands or New York we are looking at the underlying sales.
“But you’ve had this period where European stocks generally have massively underperformed the US stocks but also on a forward price-to-earnings ratio they look cheap against their history as well.
“So we’re finding businesses that we would regard as quite similar the European version is much cheaper than the US stock.”
Below, FE Trustnet asks other analysts and market experts for examples of companies that are far cheaper than their US equivalents.
Unilever
The first and largest of the companies selected is Unilever, which despite being considered an ‘expensive defensive’ in Europe, is still undervalued when compared to its rival Kraft Heinz.
Mark Nichols, manager of the four crown-rated, £2.9bn Threadneedle European Select fund, said: “In Europe you’ve got the choice of a Unilever or a Nestle – there are any number of other interesting consumer good businesses in the Europe whereas in the US you’ve got a bunch of low-growth, stodgy, old-fashioned food businesses.”
“Kraft Heinz versus Unilever therefore is a pretty good comparison. A business that is going backwards in terms of Kraft, that is heavily focused on processed foods, versus a business like Unilever, which has rapidly been moving away from things like Pot Noodles and Marmite and into personal care products such as deodorants and skin creams and increasingly has become emerging market-focused rather than developed markets-focused.
“They have quite different growth outlooks and yet Kraft Heinz trades on around 24 times earnings or so and you get to buy Unilever considerably cheaper with less debt and better growth prospects going forward.
“So yes there are some instances where the US-European comparison does yield some interesting opportunities.”
Unilever, which was recently the recipient of an extremely short-lived takeover approach by Kraft Heinz, was also a choice by Jamie Hooper, manager of the £245m AXA Framlington UK Growth fund when asked for his top ideas in the large-cap space.
TelePizza
Another company with an expensive US equivalent is TelePizza, which is the European rival to New York Stock Exchange-listed Domino’s Pizza. 
Carlos Moreno, manager of the CF Miton European Opportunities fund, said: “The investment case is that society over time seems to eat more home-delivered pizza. TelePizza is in a number of markets that are early in this move, having a substantial operation in South America.”
He says the franchise model which has worked so well for Domino’s appears to work best for TelePizza as well.
“It is very cash generative with the ‘grubby’ (and long hour-ed) business of actually running the restaurants pushed onto the hard working franchisees.
“TelePizza is 70 per cent franchised vs 100 per cent at Dominos – but it is growing every year in the mix,” the manager said.
He adds that Americans eat twice the amount of home delivery pizza per head than Europeans perhaps indicating that it is a more mature market with less growth potential.
Valuations also look attractive, though this is because the company completed a “terrible IPO” last year where it came into the market at an elevated level and was subsequently dumped by private equity shareholders, he says.
This was followed by two soft quarters, meaning the company is trading 21.58 per cent lower than its listing price in May last year.
However, Moreno says this means there is a “huge rating difference” with TelePizza on 14 times price-to-earnings ratio, while Dominos UK is at 22 times and Dominos US at 35 times.
Banca Intesa San Paolo
Stuart Mitchell, manager of the SWMC European fund, says the negative investor sentiment to Italian banks means Banca Intesa San Paolo could represent value.
“Despite the robust recovery, Europe is still often maligned by investors, with the region’s stocks trading at an unusually large 36 per cent Shiller P/E discount to US counterparts,” he said.
“Furthermore, many domestically-orientated European companies often trade at discounts of 50 per cent to US peers.
“A good example of this can been seen with Banca Intesa San Paolo, the Italian Banking group that is currently trading at 0.8 times its book value. This compares favourably to Wells Fargo, currently trading on a 1.8 times its book value.”
Performance of indices over 5yrs
Source: FE Analytics
As the above graph shows, European banks have returned 69.32 per cent over the last five years, 86.8 percentage points less than the US equivalent index, thanks to an exceptionally strong run from the middle of 2016 for US banks.
The SWMC European fund is 10.4 per cent weighted to financials, representing 16 per cent of its business cycle sensitive investments.
“We believe that the market has failed to appreciate the benefits of stable financial margins coupled with draconian cost cutting and easing regulatory pressures,” the manager noted in its latest factsheet.
“We have focused on the strongest retail banking franchises such as Lloyds and Intesa where we believe that returns should rapidly return to pre-crisis levels.
“We are also invested in Banco Popular and Commerzbank who are in the process of disposing of significant amounts non-performing assets in order to refocus on industry leading core businesses.”