The recent correction in U.S stocks may be the first of many, and more serious, declines. Global Income Edge’s answer to bear-proof your portfolio: Invest in select European stocks. We believe European markets are oversold and we’re adding two cheap, high-yielding holdings to our Aggressive Portfolio to take advantage of the situation. One yields 7%, and the other 4%.

 You may not have been scared by the sudden drop earlier this month, after all, it came up short of a formal correction, which is a 10% decline. That’s a far cry from the 20% and 30% correction some economists think is necessary to bring stock prices in line with earnings.

 This raises the question:  Was the swift recovery a “dead cat bounce”? That’s the term for a small, short-lived recovery in a security or market undergoing a deep, long-term decline.

 Why Europe?

So while our cat may have more bounces on its way down, the Europe market cat may have already hit bottom.  In fact, in the last year Europe has been hammered, slammed and crushed by concerns that the region will fall into recession or worse given the risk of deflation in the region, or geopolitical risks, such as Russia and the Ukraine.  

 News of Europe’s decline has been greatly exaggerated, though the market hasn’t realized it yet. Whereas the S&P 500 has risen by more than 70% since October 2008, the onset of the global financial crisis, the Dow Jones Euro Stoxx 50 is still down almost 2% since then. And during the recent October selloff, the S&P 500 has recovered and is up 12% so far this year, where the Dow Jones Euro Stoxx 50 is barely up 1%. 

 We’re not ignoring Europe’s serious problems. The region suffers from slow growth and double digit unemployment in some countries due to lingering effects of the financial crisis. And countries from Germany to Switzerland have revised growth lower as business sentiment is at an all-time low.

 But there are some countries that have recovered and are growing, such as the United Kingdom and Ireland.   And the European Central Bank (ECB) has unveiled plans to bolster companies’ and households’ access to financing, as well as a U.S. Federal Reserve style asset-backed stimulus program that will pump as much as $1.26 trillion into Europe.

 An uptick in consumer spending boosted by ECB stimulus and lower oil prices could improve European company earnings and stock prices.

 And the strengthening of the U.S. dollar will help Europe. European products will become more competitive in the U.S. and around the world, which would also likely drive European corporate earnings and stock prices higher.

 So the opportunity exists to invest in the European market at cut-rate, prices. Remember, this is a region that generates $16.5 trillion, or 23% of global nominal GDP.

 European banker Baron Rothschild of the Rothschild banking family coined the phrase in the 18^th Century that “The time to buy is when there’s blood in the streets.” And the time to buy seems to be upon us.

 Portfolio Update

 Given these new market opportunities, we are taking the following actions in our Aggressive Portfolio:

 We’re adding London-based global bank HSBC Holdings (NYSE: HSBC) and Santander, Spain-based Banco Santander (NYSE: SAN).  They have dividend yields of 4% and 7%, respectively. They are among the strongest banks in Europe, which will benefit the most from new European Central Bank stimulus and improved consumer spending.

 Both banks passed the European Central Bank’s stress tests, which looked at whether banks could withstand various economic shocks.  Banco Santander, the Eurozone’s largest bank by market value, had a core capital buffer of 10.34%. Lenders needed a buffer of above 8% of risk-weighted assets to pass the test, so Banco Santander is exceptionally strong.

 Further, while these two banks do compete in many of the same markets in Europe, they are dominant complimentary emerging markets.  HSBC which is the world’s second largest bank with assets of $2.67 trillion, has its origins in Hong Kong and Shanghai and offers investors exposure to higher growth Asian markets.  Banco Santander has a deep presence throughout high growth markets in Latin America.  Both banks offer good diversification between slower developed economy growth and higher emerging markets growth. 

 And as readers of Global Income Edge know, that combination is a formula for high dividends, growth and stability.

 In the next few weeks, we’ll be sharing in-depth profiles on both firms.

 HSBC is a Buy up to $55 and Banco Santander is a Buy up to $10.

 Also, we’ve decided to put oil platform company Seadrill (NYSE: SDRL) on Hold. Oil and gas investments are not for the faint of heart, as they have always been volatile. We may be at the beginning of an extensive, long-term correction as a result of a glut in the oil market due to slower global growth.

 I do still believe in the fundamentals of the firm (I’m long-term bullish on oil), and they have one of the best, newest oil platform fleets in the world. But how they reposition themselves in this correction will be key, and I’d prefer to hold back, watch and wait how management defends its position.

 I think that lower oil prices will push less efficient competitors out of the market and Seadrill will come out on top to dominate the market. But short-term earnings pressures could impact the dividend given their high debt levels, and headwinds from projects in Russia due to geopolitical tensions could hamper earnings. Better to be safe than sorry and not buy more Seadrill.

 Seadrill (SDRL) is a Hold.