Investing in Europe-specifically Western Europe--seems mundane. During the late, great global bull market earlier this decade, the U.S. was growing, the emerging markets (including Central and Eastern Europe) were roaring, and even Japan's persistent malaise was an interesting story line.

Western Europe? Sure, the region is the driving force behind the 27-nation European Union, the world's largest economic entity measured by gross domestic product. And its economy is traditionally viewed as a steadier ship than the one in the U.S.--not as dynamic, but not as volatile either.

But such steadiness lacks sexiness, and it didn't shield investors from pain during the recent downturn. The E.U. was P.U. and the U.K. was less-than-O.K., and about the best you could say for Western European markets is that the collective group fared better than their former high-flying cousins in Central and Eastern Europe.

But some money managers believe Western Europe now offers compelling investment prospects, even if the region lacks scintillating growth prospects. "I think of all of the geographies we deal with, Europe is perhaps less exciting than the others in terms of earnings potential," says William Fries, lead manager of the Thornburg International Value fund. "But it is an exciting value opportunity."

Others concur. "Considering Europe's zero population growth, which will probably go negative in five to ten years, there's no demographic impetus for growth," says Martin Jansen, senior portfolio manager at ING Investment Management. "And that's enough to shave 1% from Europe's future growth rate. As society gets older, it gets more conservative in a financial sense. That means less inclination to consume and take on debt, which impedes growth."

Nonetheless, he adds, "There are certain times when cyclical valuation plays are attractive. And Europe now represents one of those times for the valuation argument. Depending on what base you use, in 2010 you're looking at Europe being about 10% to 15% cheaper than the U.S."

Signs of Life
Led by surprising-yet still modest-gains in France and Germany, gross domestic product (GDP) growth in the 16-nation euro currency zone shrank at an annualized rate of 0.4% in the second quarter. That was a dramatic improvement from the 9.7% annualized contraction rate in the prior quarter. In aggregate, the entire 27-member EU's GDP contracted at an annual rate of 1.2%. That's roughly on par with the U.S., which fell at an annual rate of 1% during the second quarter.

France and Germany helped pick up the slack for laggards such as Spain, Italy and the United Kingdom, which face a variety of issues ranging from weak exports markets to busts in the financial and housing markets. And many Eastern European countries remain troubled by plunging exports, high current-account deficits and bloated debt levels.

In short, Europe isn't a monolithic bloc. And that requires selective investing.

"We don't play the European demographics, or the U.S. demographics for that matter," says John Maxwell, manager of the Ivy International Core Equity fund. "You can't bet on significant improvements in purchasing power in Europe. But I think people should have exposure to Europe because there are a lot of great companies that aren't necessarily tied to that economy."

Among his favorites is Total, the French oil giant. "Total runs as good a business as Exxon," Maxwell says. "It has a low cost structure. And they have good relationships with certain countries that gets them favorable treatment in developing oil reserves."

He also likes a couple of European pharmaceutical giants. One is the French company Sanofi-Aventis, which recently traded at seven times forward earnings, sported a 4% dividend yield and had been aggressively cutting costs. That said, the company does face some drug pipeline issues.

"There is no question they face expirations for some large drugs like Plavix, Lovenox and others," Maxwell says. "They are going to try and offset these losses with new drugs, vaccines, geographic expansion and cost cutting. Execution will clearly be important."

The other company he likes is Roche Holding in Switzerland, the world's largest biotech company, after it bought full ownership of Genentech earlier this year. Maxwell says Roche's cancer drugs will face very little near-term risk from competition or patent problems. He adds that new indications for the company's existing drugs, along with its solid drug pipeline, should allow the company to grow with a reasonable valuation.

Maxwell's fund is underweight in Europe, but he sees some of the continent's multinational companies as great ways to play the global economy. "The world is going through an infrastructure build and that's a positive for a lot of European industrial companies," he says.

Among them are two French companies--Alstom and Technip. Alstom is a global leader in both power plants and trains, while Technip is an engineering and construction company serving the oil and gas industry.

Going Global
Despite Europe's various economic woes, the continent fared well according to a survey released in September by the Geneva-based World Economic Forum that ranked the world's most competitive economies. Switzerland dethroned the U.S. for top spot, while Sweden, Denmark, Finland, Germany and the Netherlands also made the top ten.

The survey didn't mention problems surrounding Swiss banking secrecy, though it did note that the country's financial markets had weakened somewhat. Still, James Moffett, the lead portfolio manager of the Scout International fund, says he's been building the fund's stake in Swiss financials. And he's a fan of Switzerland in general.

"That's where we're as overweight as anywhere," says Moffett, whose fund portfolio recently was 56% in Europe. "There's a top-notch machinery and equipment company in ABB Group and a food leader in Nestlé. And it has a good number of health-care companies."

One of Moffett's favorite themes in Europe is health care. "It's out of favor, but the underlying growth is still there," he says. Among his favorite companies is Novo Nordisk, a Danish concern that's among the global leaders in diabetes care. Another is Fresenius, a German company that's a major global player in dialysis products and services.

If there's any investing trend to be gleaned from Europe, it seems to be this: Invest in multinational companies with a strong global footprint. "If you choose the right pockets of Europe, you have increased exposure to emerging markets," says Robert Quinn, Standard & Poor's European equity strategist. "And the best sectors for that are consumer staples and energy."

Quinn also favors the automobile and consumer durable industries within the discretionary sector, along with electrical equipment among industrials. S&P's list of "preferred" companies includes ABB, Alstom, Nestlé and Sanofi-Aventis, along with such names as the British aerospace and defense company BAE Systems, French luxury goods purveyor LVMH, and Anglo-Dutch consumer products giant Unilever.

Hare, Not Tortoise
European equities, like those in most global equity markets, have been feeling the love since the early-March lows. As of Sept. 15, the Dow Jones Stoxx 600 European Index gained 22.6%.

But some people wonder if the European markets have got ahead of themselves. Quinn believes that market sentiment will be tested by third-quarter results from banks, as well as by some nonfinancials that have benefited from share price gains based on less-worse-than-expected results. He's bullish on European equities over the next 12 months, regardless of any potential short-term hiccups.

The S&P's GDP forecast for the euro zone in 2009 calls for a contraction of 4.4%, followed by a 0.5% recovery in 2010. S&P's forecast for the U.S. is negative 2.9% in '09 and positive 1.5% in '10.

"The great thing about the U.S. is you have one country and decision-making administration versus a lot of different factors in Europe vying for a voice in policy-making," says Quinn, who's based in London.

ING's Martin Jansen says European stocks, particularly the global franchises with significant exposure to emerging markets, could be solid performers as long as they can contain--and ultimately lower--their operating costs.

"Western European companies are aggressive in outsourcing labor to Eastern Europe where the skilled workforce costs one-third to one-fourth less," Jansen says. "That was a big driver for Eastern Europe. But both its manufacturing and banking sectors have taken massive hits during the global economic downturn."

He says Eastern Europe is starting to look attractive, but within emerging markets he's more comfortable with countries such as Brazil and those in the Asia-Pacific region. "And at this point we're more comfortable with Western Europe than Eastern Europe because the latter has a big hole to dig out of."

"Long-term," Jansen says, "Europe is steady and stable, but it's not exciting."