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Published: Mar 18, 2016 3 min read
Illustration by Taylor Callery for Money

There are lots of things wrong with Europe: It has awful pop music. Many of its inhabitants don't speak English no matter how loudly you shout at them. And European stocks have gone nowhere over the past decade.

Many strategists say to look past the shortcomings as European shares trade at a 30% discount to U.S. equities, with a price/earnings ratio of just 14. But here's the thing: These stocks are nearly always cheaper than U.S. shares. Europe "has a higher weighting of energy, commodities, and financials than the U.S.," says Vincent Montemaggiore, manager of Fidelity Overseas. Those stocks sport low P/E ratios whether in the U.S. or abroad—especially after the commodity meltdown of 2015 and 2016.

The best case for Europe is that it looks a lot like the U.S. did three years ago. The economy is finally emerging from a recession, aided by massive stimulus from its central bank. But with GDP growth still below 1%, play it safe.

Pick the right sectors

Look to those areas that rose in the U.S. when the Federal Reserve was pumping money into our economy a few years ago: consumer stocks, tech, and health. Profit growth for these sectors is expected to exceed the 6% forecast for the broad European market.

Benjamin Segal, head of global equities at Neuberger Berman, also sees opportunities in financial stocks. "European banks in particular have shrunk their balance sheets, rebuilt capital, and are benefiting from the economic recovery and resulting demand for credit," he says. T. Rowe Price European Stock Fund has bigger than average stakes in consumer, tech, and financial stocks—and has gained 6.6% a year over the past five years, vs. 4.57% for the average European fund.

Protect your returns

Europe actually fared better than the U.S. in 2015. But the soaring dollar robbed Americans of most of those gains. In euros, the MSCI Europe index gained 2.2% last year, vs. a loss of 0.7% for the S&P 500. Translated back into dollars, though, European stocks fell 5.3%.

The dollar is expected to strengthen further this year, as the Fed's December rate hike will boost demand for the buck. By contrast, the European Central Bank is sitting on rates to stimulate growth.

So diversify. With a portion of your Europe holdings, go with a fund that hedges its euro exposure. WisdomTree Europe Hedged Equity Fund , which uses forward contracts to sell euros to offset its euro holdings, has beaten more than 85% of its peers over the past five years. And that includes periods of dollar strength and weakness.

Columnist John Waggoner is the author of three books on Wall Street and investing.