By Ian Salisbury

With tariff uncertainty weighing on U.S. markets, European stocks, which often boast higher yields and lower valuations than U.S. counterparts, are starting to look attractive.

For years, European stocks have lagged behind U.S. names, thanks to stronger U.S. GDP growth and tech-driven earnings. So far this year, the tables are turned. The Stoxx Europe 600 index is up about 3.1%, compared with a decline of 5.5% for the S&P 500.

That makes Europe a potential lucrative hunting ground for U.S. investors. Years of underperformance mean bargains abound, especially for investors looking for yield. That is especially true since many investors exhibit " home country bias."

Take a look at iShares Europe ETF, an exchange-traded fund designed to track the region's stocks. The average price-to-earnings ratio of stocks in the fund is just 13.6, compared with nearly 20 for the S&P 500. Meanwhile the fund yields 3.6%, based on Wall Street forecasts for 2025 dividend payouts, double the S&P 500's 1.8%.

Can European stocks continue to deliver for investors? Plenty of market watchers think so.

Last year, the U.S. economy grew 2.5%, roughly double Europe's growth rate, explains Morgan Stanley strategist Vishwanath Tirupattur in a note Sunday. But, he adds, the firm's economists see U.S. growth slowing to 0.6% in 2025 and 0.05% in 2026, largely thanks to the Trump administration's tariff and immigration policies.

Meanwhile, Morgan Stanley sees European growth, stoked by recent fiscal stimulus, more or less matching the U.S. this year and accelerating to 1.1% next year.

"If these expectations hold, the positive growth differential the US enjoyed versus the euro area disappears in 2025 and turns negative in 2026," Tirupattur concludes.

J.P. Morgan also likes European stocks. In the short-term, stocks in both regions are likely to continue yo-yoing based on the latest trade headlines, wrote strategist Mislav Matejka in a note Monday. But years of underperformance means European and other foreign stocks have more upside.

"We believe International equities offer better risk reward compared with the US," he wrote. "They are cheaper, potentially have better fiscal tailwinds, and the relative earnings trends could also look more favourable."

J.P. Morgan also published a list of its top European picks. We've highlighted the names below with most attractive yields -- all above 4%.

The picks aren't without risk -- Norwegian energy company Equinor boasts a yield of nearly 15%, highest on the list, in part because its stock price has languished, declining 15% in the past year. In February, the company disappointed investors when it posted lower-than-expected earnings and said it would scale back its renewable energy investment, while focusing more on oil and gas.

Still, investors shouldn't have to worry about overpaying for these names. The highest P/E ratio on the list belongs to Merlin Properties, a commercial real estate firm that owns offices, warehouses, and shopping centers in Spain and Portugal. Trading at 17.7 times 2025 earnings, it is still cheaper than the average stock in the S&P 500.

Other names in the list are Shell, Norsk Hydro, Andritz, OPmobility, Pirelli, Intesa Sanpaolo, Aegon, National Grid, and Enel.

Write to Ian Salisbury at ian.salisbury@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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April 28, 2025 16:39 ET (20:39 GMT)

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