European stocks are trading at a near-record discount relative to U.S. equities, presenting a unique opportunity for investors seeking exposure similar to that provided by the Magnificent 7—but without the stretched valuations seen in the U.S. market.
In a report released Monday, BCA Research introduced the “DIVE” strategy—short for “Do it via Europe”—which focuses on select European sectors that have historically shown a high correlation with the performance of U.S. tech giants while maintaining robust correlation with the S&P 500 over the long term. To avoid sector bias, the model deliberately excludes tech and communication services stocks. Instead, it targets industries such as construction materials, electrical equipment, aerospace and defense, and health care equipment.
BCA Research notes that a market-cap-weighted basket of these European sectors has generally tracked U.S. equities while outperforming the broader Eurozone market. Moreover, this basket trades at a forward price-to-earnings (P/E) ratio of 17.4, significantly more attractive than the 22.1 multiple observed in U.S. stocks, offering both valuation advantages and enhanced diversification.
For investors interested in a deeper dive into these valuation differences, the Sector P/E Ratio API provides real-time insights into sector-specific valuation metrics. Additionally, understanding the composition of this diversified basket is made easier with the Industry Classification API, which categorizes companies by industry and highlights areas of potential exposure.
By leveraging the DIVE strategy, investors can capture the upside of U.S. tech-driven growth through European channels—benefiting from more attractive valuations and diversified exposure in sectors that mirror the performance of the Magnificent 7 without the premium pricing. This approach not only mitigates risk but also provides an effective alternative to directly investing in U.S. stocks in the current market environment.
As global dynamics continue to evolve, strategies like DIVE could become increasingly relevant for investors seeking long-term growth with a more balanced risk profile.