Portugal Is Turning The Corner, And Things Are Getting Better

December 20, 2013 2:07pm NYSE:PGAL

portugal: I had just returned to my hotel room in Innsbruck, Austria, when my wife called. Before I could tell her about the beautiful scenery and amazing experiences I was having on The Oxford Club’s European


Opportunity Expedition, she stopped me.

I needed to hop a flight to Portugal immediately, she said. My father – who also happened to be in Europe, though not part of our tour – was having emergency (though, fortunately, routine) surgery in Lisbon.

I spent three days there. And when I wasn’t at the hospital, I had my eyes and ears wide open. Whenever I travel, I always talk to people about the local economy, to try to get a read on what’s happening on the ground. And I was surprised by what I saw and heard.

Remember, Portugal is the P in PIIGS – the European countries whose economies were in so much trouble not long ago. The others are Ireland, Italy, Greece and Spain.

But in Lisbon, the evening streets were packed with people on their way to restaurants and night clubs.

When I talked with cab drivers or shop owners, they all told me, “Things are getting better.” They made it clear that Portugal is no economic paradise and there is a lot of work still to be done, but things are improving.

As you can see from the chart above, Portugese unemployment is still quite high at 15.6%, but it is headed in the right direction.

There were 47,000 fewer unemployed people in the third quarter than in the second. Portugal has a population of 10.5 million people.

The GDP annual growth rate is negative, but it, too, is beginning to move in the right direction.

Portugal is forecast to grow GDP by over 2% in 2014 and more than 5% in 2015.

Consumer spending and consumer confidence are both turning higher. Retail sales showed positive growth for the first time since 2011. Business confidence is also improving.

And Portugal’s Purchasing Managers Index recently hit a 31-month high.

Debt is the big problem for Portugal, which is why it required a bailout from the EU. The package expires in June and Prime Minister Pedro Passos Coelho said last week that the country will not need a second bailout.

During the first part of my trip, I was very impressed with Switzerland and its 3% unemployment rate and 16 straight quarters of economic growth. But with Portugal just beginning its recovery and being completely ignored by the rest of the world, I suspect it’s a better investment opportunity.

I’ve been big on Europe the past few months, adding several European stocks to the portfolios in the Oxford Income Letter and my other trading advisories. Europe is still off many investors’ radar due to the economic problems of a few years ago, but things are clearly getting better.

That being said, I have not yet recommended any Portugese stocks.

But I’m going to take a closer look at the following stocks in the weeks and months ahead.

EDP-Energias de Portugal, S.A (ADR)(OTCMKTS:EDPFY). The electricity provider also generates wind power all over Europe and in the United States and Canada. It trades at just 10 times earnings and based on the dividend from the past 12 months pays a 6.7% dividend yield.

Portugal Telecom, SGPS (ADR)(NYSE:PT). The telecom company does business in Brazil and Africa as well as Portugal. It has a robust 5.7% yield and nearly $2 billion in operating cash flow. It trades at just eight times earnings.

There’s also a new ETF focused on Portugal, the GLOBALXFTSEPORTUGAL20ETF(NYSEARCA:PGAL). It’s been around only for about a month and trades very few shares each day, so keep that in mind.

My dad is on the mend, resting at home. The next time I go to Portugal, I hope it’s to follow up on an investment idea instead of getting a firsthand look at its healthcare system.

And while I’m certainly not glad that my family had to go through this ordeal, it opened my eyes to a market I hadn’t seriously considered.

Good investing,

by Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Investment U provides cutting-edge research and strategic financial recommendations for all levels of investors through its morning publication Investment U Daily and its related publications.


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