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One of the Cheapest Markets in Europe

I have spent the last week in Poland, gathering research on the rising middle class here. And it is certainly rising!

New research shows that Warsaw’s per-capita GDP (on a purchasing-power parity basis) now tops Vienna, Austria, Madrid and several other Western European cities. And Vienna boasts one of the highest standards of living in Europe. So Warsaw’s wealth says something about the country and where it’s going.

Certainly, much of Poland’s wealth is concentrated in Warsaw, Kraków, Gdańsk and other major cities. Nevertheless, one of the corporate executives I talked to earlier this week told me that even out in the countryside wealth is clearly on the upslope. Farmers — once a collective mess at the end of communism — are now tooling around in tractors that cost the equivalent of a Ferrari. He knows because his company specializes in providing services across rural Poland, and business is clearly growing.

Another, a bank president, told me private-asset wealth inside the bank is growing 10% to 12% a year — and that’s all additional principal flowing in, given that Poland’s stock market has been in the dumper since 2011 and, thus, not providing capital gains to asset-management firms. Moreover, half that flow of new money is coming from new clients who didn’t have the necessary level of minimum wealth a few years ago, but now do.

Depending on moves the government makes over the next couple of years, Poland will grow at 3% to 4% on the lower end, and as much as 6% on the higher end. Either way, it is going to continue to outpace the rest of Europe for several more decades.

And what makes all of this so appealing is that Poland is the cheapest market in Europe, outside of Greece and Russia. The latter two clearly have significant economic issues to deal with. Oddly, Poland doesn’t, yet it’s lumped into the category of economically-impaired economies. The market trades at a price-to-earnings (P/E) ratio of 10 on a 10-year, cyclically adjusted basis (how I always look at markets as a whole because it smooths the economic volatility). But even on a nominal basis, Poland is cheap with a P/E of just 14.

Many locally traded companies sport single-digit P/E ratios and dividend yields of 5%, 6% or more — and these are good, solid companies.

It has taken Poland just 25 years to progress from former-communist basket case to rock star of the European Union. There are many reasons to believe Poland’s momentum still has a long run ahead of it — which means there are many reasons to believe that Polish stocks are going to dish out huge returns in the coming years.

It’s why I’m here researching them…

That’s all I can jot down as I continue interviewing throughout the day. But I’ll be back next Thursday with your regular dispatch.

Meanwhile, you can take a look at our updated portfolio here.

Until next time, keep a global view…

Jeff D. Opdyke
Editor, Profit Seeker