Europe has been one of the biggest drags on the global economy for nearly four years, with nine of the 17 euro zone countries in recession.

However, the markets of developed Europe have been among the top performers so far in 2013, as measured by single-country exchange traded funds (ETF).

Using those ETFs as proxies for performance, the worst markets hands down are in South America and most of Asia.

Japan (up 16.8 percent) has been this year’s top performer, followed by Ireland (up 14.7 percent) and the United States (up 13.8 percent). The United Kingdom (down 1.6 percent), Germany (down 2.1 percent) and France (down 2.6 percent) actually rank near the top of the second quartile in terms of year-to-date performance.

This year isn’t expected to mark a major turning point for Europe. Eurostat, the European Commission’s statistical bureau, forecasted a further 0.1 percent contraction in the region’s debt-saddled economy. But the back half of the year is looking increasingly positive, as the European Union makes headway in dealing with its troubled banks.

Last week, EU finance ministers returned an agreement on how to rescue troubled banks in the future, requiring bank investors and large depositors to take on a greater role in bailing out a failing bank, before governments step in with taxpayer money.

The European Parliament must still ratify the agreement and a number of details remain to be worked out, but stockholders and bond owners will initially be required to carry a bank’s losses. If more money is still needed, depositors of more than EUR100,000 would then be tapped for funds. Only after investors and depositors have absorbed at least 8 percent of a bank’s total liabilities would governments step in.

In addition, each member country will be required to set up some form of a national resolution fund financed through bank levies similar to the US’s Federal Deposit Insurance Corporation (FDIC). Within the next decade, those funds should cover 0.8 percent of insured deposits.

A clear resolution plan will go a long way towards calming the markets and, while the agreement has been criticized for creating greater perceived risk for investors, it’s largely in line with international norms. Even the FDIC has deposit insurance limits. It also sends the message that the initial Cypriot bailout proposal which would have impacted depositors of less than EUR100,000 won’t be the norm in the region.

Another positive for the region are the German elections scheduled for September.

As we’ve pointed out in the past, Chancellor Angela Merkel and her governing coalition are expected to remain in power. Although generally critical of the wave of stimulus being provided by central banks the world over, Merkel and her Finance Minister Wolfgang Schäuble have gradually become less vocal about enforcing regional austerity and have begun talking more about fostering growth.

That shifting rhetoric is largely due to declining pan-European support for the German views on the matter, as the region’s economy continues to lag other developed nations. A consensus seems to be building around greater direct economic support, leaving the Germans behind.

Merkel can’t directly embrace any significant stimulus given the broad support for European austerity among the German public ahead of the elections, but she clearly understands which way the winds are blowing.

In the meantime, European multinationals remain attractive.

As with major corporations the world over, European blue chip companies have become increasingly less reliant on their home markets. In many cases, only about a third of revenues are tied to their indigenous markets. The emerging markets in particular have become drivers of revenue and earnings growth.

Despite economic weakness in the region, select European blue chips are solid buys. And if Eurostat is correct in its belief that the region’s gross domestic product will grow by 1.4 percent, investors should enjoy an early mover advantage as regional sentiment improves.

Best of the Bargains

Italy-based Luxottica (NYSE: LUX) is the perfect example of a European company increasingly less reliant on its home markets.

The largest eyewear manufacturer and retailer in the world, Luxottica is the parent company of LensCrafters, Pearle Vision and Sunglass Hut, with more than 7,000 retail locations around the world. It also owns the iconic Oakley and Ray-Ban brands of eyewear, as well as offering a wide array of designer-licensed frames such as Chanel, Coach, Burberry, Prada and the recently announced Armani line.

Europe accounts for only 40 percent of the company’s total revenues, with a focus on mid-tier and luxury markets. The Continent also is one of Luxottica’s slowest growing markets, with sales up just 4 percent last year versus 6 percent growth in North America and 26 percent growth in the emerging markets.

The company’s returns on both assets and equity have been expanding in recent years, hitting 6.3 percent and 14.3 percent last year, respectively. Net margin has also been widening, up from 6.2 percent in 2009 to 7.6 percent last year, as its own in-house brands account for a growing percentage of sales. Thanks to that shifting product mix, revenue has grown an average 11.6 percent over the past three years but earnings per share (EPS) have averaged 18.6 percent growth over the same period.

A model of vertical integration, Luxottica enjoys a massive geographic footprint. Few competitors can match the company’s low costs and high volumes, leaving it plenty of headroom for future growth. It will continue to outpace its competitors, propeled by its aggressive expansion strategy involving both acquisitions and organic growth.

Management is expanding the company’s presence in the world’s megacities such as Delhi, Shanghai and Jakarta, where there’s a dearth of eyewear, much less fashion accessories.

As emerging market consumer incomes continue to rise, the company’s focus on those regions will continue to drive revenue and earnings gains.

Luxottica is a buy under 61.

Spain-based Grifols (NSDQ: GRFS) offers a wide array of health care prod­ucts, from three main divisions.

Grifols’ diagnostics division provides equipment and chemicals used in blood typing; test systems used to measure and monitor blood clotting times; analyzers to measure immune system activity; and products and services for blood banks.

The company’s hospital division supplies products and equipment for patients receiving nutritional support through feeding tubes; medical devices used in surgical procedures; intravenous fluid solutions; and a variety of hospital logistics systems.

The biosciences division supplies he­motherapy treatments that use human blood and its components.

Grifols’ exceptional research and de­velopment has spawned a host of new treatments, the sophistication of which set the company apart from its peers.

Among the company’s most in-demand products is Gamunex, an intravenous immune globulin (IVIG) used to treat progressive nerve damage that results in pain and weakness in a patient’s extremities.

Gamunex is the only treatment of its kind and enjoys looser regulatory stric­tures in the US under “orphan drug” status.

The company also makes treatments for genetic pulmonary disorders; hu­man clotting factors for patients with hemophilia; and vaccines for rabies, tetanus, hepatitis, and chickenpox.

Grifols has historically been a low beta stock, with revenues and earnings typically growing in the mid-single digits.

The company’s first-quarter 2013 revenue reached $910.35 million, an increase of 2.6 percent year-over-year and 3.4 percent sequentially.

First-quarter earnings hit $152.6 million, an increase of 19 percent from the same year-ago quarter, boosted by overseas sales, especially in Latin America and Asia.

Grifols generates over 90 percent of its sales outside its recession-hit home market. Developed market sales declined slightly, but sales to the rest of the world shot up by 26.4 percent.

Since its acquisition of Talecris in 2011, Grifols has become the third-largest global provider of plasma products, allowing it to develop huge economies of scale.

The company’s three-year average revenue growth is running at 42.1 percent, with earnings growth of 6.9 percent. Free cash flow has also jumped from just 3.4 percent of sales in 2011 to 13 percent last year.

Buy Grifols under 35.

Unilever NV (NYSE: UN) is the third-largest packaged food business in the world, with brands that include Lipton tea, Ben & Jerry’s ice cream and Bertolli pasta products. It’s also a leader in household and personal care products, such as Dove, Vaseline and Surf.

More than 57 percent of Unilever’s sales come from emerging markets, particularly Brazil, India, Indonesia and China. In addition, the company has been working to simplify supply and manufacturing chains on a global basis, cutting costs and acquiring popular brands in several markets. It also recently announced that it is increasing its ownership stake in its Indian subsidiary from 52 percent to 75 percent.

Unilever was one of the first con­sumer product companies to focus on the growth potential of emerging markets. Over the past two decades in those regions, the company has averaged 9 percent-plus annual sales growth. Overall annual global sales growth has jumped from 4 percent to 6.5 percent over the past two years.

Thanks to its success in streamlining operations, operating income and EPS have both grown by more than 11 percent over the last three years. Free cash flow has also grown to more than 9 percent of sales.

Despite dire economic conditions in Europe last year, Unilever enjoyed strong growth throughout all operat­ing segments and geographic regions, with double-digit gains in home care and personal care products.

Emerging markets are the brightest spot for the company, accounting in 2012 for 55 percent of revenues, up 11.4 percent from the previous year.

Famous household brands and cost efficiencies, combined with economic growth and rising consumer spending, will put Unilever in a strong position in the years ahead. Analysts project that the company’s EPS will jump 10 percent this year, compared to 2012.

Because of its terrific growth potential in the emerging markets, we’re adding Unilever NV to the Long-Term Portfolio as a buy under 46.