This article is the follow-up to a previous article entitled „Time to dump your European service provider stocks?“

Over the period 2004-2010, we have seen that a number of big European stocks have been down a bit or a lot. This includes three big names in the market:  Vodafone, France Telecom (Orange) and Deutsche Telekom. If these stocks have gone down over the last 7 years, does that mean that they are underpriced now?

Those who believe that the market is fully efficient will say that this question is absurd because the market is always at the right price. But firstly, there is considerable amount of evidence that the market is not fully efficient. And secondly it can be very useful to better understand what you have to believe about the future for stocks to be priced at their current level. If your beliefs are not what the market believes, then there is an opportunity to put a bet on what’s going to happen in the years to come.

How do you know whether a stock is underpriced for a start? If you have ever bought or sold stocks, we bet that in 95% of the cases you have not done any detailed analysis but relied on sentiment, gut feeling, what you read on the Internet or what your financial advisor has told you. But you should do the check yourself. This will take you a bit of time, but might avoid some costly mistakes. And in many cases, you will be surprised by the results. In all cases, you will learn something about the stocks that you contemplate buying or selling, and this is great news!

This column might be unpopular. But if you are honest with yourself, you know that the truth often hurts.

Check a couple of big European service provider stocks on Yahoo Finance or your preferred financial web site. Look at the last 2 years, 5 and 7 years – take 7 years rather than 10 to hide the 2000-2002 dot.com crash, which was truly exceptional. What do you see?

We have done the check for you, for the following European service providers: BT, Deutsche Telekom, France Telecom (Orange), Telecom Italia, Telefonica, Vodafone. And added the Euro Stoxx 600 index on top as benchmark.

I don´t know whether you have noticed, but something happened on the stock markets this week.

Take the DAX Total Return, a well-constructed index (unlike the Dow Jones).  The index had been hitting a ceiling at 6300 points a number of times this year but never managed to get through.  This week, we have passed 6400 points for a couple of days now.  This might be a sign that it is time for you to invest your money in stocks.

Last time the DAX reached 6400 points, this was in early September 2008, more than 2 years ago, before the Lehman disaster was announced.  6400 points were also reached in early 2007, while the DAX was on its way to a high of 8000 points reached only 6 months later.  Before that, you had to go as far back as February 2001 to see the DAX at 6400 points, on its way down to a low of 2200 points reached in March 2003.

Does that mean that the DAX could hit 8000 points soon?  I don´t know.  And nobody knows, really.  The only thing that I know is that the DAX has been at 8000 before: in March 2000, July 2007 and December 2007.  So getting there once more is not impossible.  Some say that as the DAX performance has been rather disappointing on a 10-year period basis (2000-2010: the lost decade for stocks?), the index has some catch up to do.