An investor's bet on European countries getting their financial houses in order requires a leap of faith because things aren't looking so good:

--French union workers have staged massive marches in the streets to protest President Nicolas Sarkozy's budgetary move to increase the retirement age from 60 to 62 by the year 2018.

--Cuts in public spending proposed by U.K. Prime Minister David Cameron have been greeted with threats from workers and calls for civil disobedience.

--The European Union, talking tough, proposed new sanctions that could be used to punish member states that exceed prescribed deficit and debt limits.

Despite all the noise, however, reasonably-priced stocks of European companies that serve global markets can offer potential for investors who don't follow the herd. Firms counting the enormous Chinese market as a valued customer will likely perform best of all.

European region mutual funds gained 13 percent in the third quarter of 2010, according to Lipper Inc., though their 12-month return was a negative 2 percent.

"Because the news is all bad in Europe right now you can buy very cheap equities, but patience will be required," said David Samra, portfolio manager of the $2.4 billion Artisan International Value Fund (ARTKX), up 7 percent the past 12 months. "You don't want to be buying European funds now and in six months be looking to sell them, since things could be difficult for a few years."

If you avoid the European market altogether you will miss out on some gains because there will eventually be a run-up in those stocks, he believes. Sixty percent of his fund's assets are invested in the U.K. and Western Europe.

Two of Samra's favorite stocks are Irish-based Ryanair Holdings Plc (RYAAY), Europe's largest low-cost airline that has almost no debt and the region's best safety record, and the U.K.'s Compass Group Plc (CMPGY), the world's largest contract caterer that enjoys the pricing power in hospitals and schools that drive up its earnings.

"Investors can still make money in European stocks if they focus on companies and countries that are global powerhouses," said Mark Salzinger, editor of The Investor's ETF Report, Brentwood, Tenn. "For example, there are well-positioned companies in the oil and industrial sectors, while Germany is strong in exports."

Focus only on only the "best of breed" companies in Europe, he advised.

Among oil company stocks, Salzinger recommends France's Total SA (TOT), Norway's Statoil ASA (STO); and U.K.'s Royal Dutch Shell Plc (RDS.B) because of low valuations, attractive yields and strong connection to the global economy.

In exchange-traded funds (ETFs) that trade like stocks, he recently purchased shares of iShares MSCI Germany Index (EWG). In mutual funds, he likes the large value vehicle Oakmark International Fund (OAKIX) that has 68 percent of assets in Europe and an outstanding long-term record.

"I personally think people who want to own a piece of Europe are better off spreading risk going through an ETF rather than picking individual stocks," said Ron DeLegge, editor of the ETFguide.com in San Diego. "That's especially true in the European financial sector, where there are so many unknowns."

For investors willing to "put on their contrarian hat" and invest someplace out of favor, Europe is definitely it, DeLegge believes. Vanguard European ETF (VGK) is one of the most diversified funds, with about 460 European stocks and low expenses, DeLegge said. Another of his ETF choices is iShares S&P Europe 350 Index (IEV). To focus on large European stocks, there is SPDR Euro Stoxx 50 (FEZ).

You can't just say European investing, since the significant differences between the fiscal policies of its countries are becoming more obvious. For example, Germany's economy has received a strong boost from China buying its cars and industrial machinery.

"In terms of economic strength in the European community, clearly Greece and Portugal rank at the bottom of the list, while Germany, England and France rank toward the top," observed Paul Nolte, managing director of Dearborn Partners in Chicago. "This is not a homogeneous group of companies that you can talk about in the same way."

Europe has similar banking, consumer and economic issues as those of the U.S., Nolte noted, so a diversified mutual fund or stocks with global exposure provide the best bets.

Nestle SA (NSRGY), the world's largest food and beverage company, derives more than half of its revenues from Western Europe and North America. If you're looking for exposure to a specific country or a currency, a mutual fund may be the best way to go, Nolte said.

Some European sectors are best avoided altogether, among them the banking industry. Except for the U.K., Samra considers most European banks to be "toxic."

"The use of debt financing in Europe is relatively immature and this inexperience has caused most of Europe's industrial base to have too much debt," Samra warned. "Investors should be very careful about looking at the debt levels of the European companies they're investing in."

Samra seeks these characteristics in the European stocks he buys for Artisan International's portfolio: Good price, well-positioned business, strong balance sheet with low debt and management team with a track record of creating shareholder wealth.

All of which makes good sense no matter what the continent.

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(c) 2010 Andrew Leckey