I don’t know about you, but I’m getting tired of hearing about the economic troubles in the eurozone. The media seem too focused on bad news, rather than reporting the tremendous progress that’s been made in cleaning up the debt mess and getting the struggling nations back on track. While trouble still remains, things are looking brighter each week.#-ad_banner-#

These flickering flames of hope are a direct result of fiscal policy and hands-on approach by government officials. Much like the U.S. Federal Reserve’s bank bailouts during 2008-2009, the European Central Bank is now pouring trillions into Europe’s most economically struggling nations in an effort to alleviate the debt crisis. 

As a free market advocate, I don’t agree with this heavy-handed government intervention. As an investor, however, I’m pleased to see the bullishly positive results of the efforts. For example, Italy, Portugal and Greece have already seen an uptick in exports. Labor costs have fallen in Ireland. And money has started to flow into Spain for the first time since the summer of 2011. The European Central Bank has also provided assurances that it stands ready with another bailout should a floundering nation need an additional helping hand.

Intrigued by the signs of improvement, I decided to take a closer look at possible stock investments in European-based companies. Starting with what I consider a “top-down approach” to locating investible assets, stock-based mutual funds were my initial target. Not only can investors easily invest directly into a mutual fund, but the funds I found represent a wide swath of the European economies. 

The fantastic numbers these funds are sporting so far this year really surprised me. While it’s a long, slow road for fiscal stimulus to improve economies in general, it quickly ramps the bottom line with public companies.

1. Federated International Leaders Fund (Nasdaq: FGFAX)
FGFAX has gained nearly 18% this year. Of the fund’s assets, 74% are invested in European-developed markets, which include 9% in Asia, 6% in the United States and 2% in Latin America, 2% in Canada and the remaining 7% elsewhere. 

2. Putnam European Equity Fund (Nasdaq: PEUGX)
PEUGX has returned more than 17% this year with 95% of its assets deployed in European countries. If the fiscal stimulus continues to work its magic and the European economies slowly improve, there is nothing but upside for these funds and their underlying stocks.

While these mutual funds can offer broad, diversified exposure to the slowly improving eurozone, many investors prefer to invest in individual stocks and build their own portfolio. 

Here are three top-tier eurozone stocks that should continue to ride the wave of economic improvement…

3. Vodafone Group (NYSE: VOD)
Vodafone is the world’s second-largest wireless phone company. Boasting a $139 billion market cap, it is in the top holdings of the two mutual funds mentioned above. Considering where the company is based, the stock has a low beta of 0.76 and a dividend yield of 7% based on the last year of payments. 

European telecom companies have become among the world’s top dividend payers over time, making Vodafone an ideal choice when it comes to investing in reliable international stocks. Technically, the price has pulled back from the recent high of $30, finding support directly on the 200-day simple moving average. Its price is firmly in my technical value “buy” zone right now. 

The company plans on selling Apple (Nasdaq: AAPL) devices beginning Nov. 2 and is in the process of building a faster mobile network, which will add to its future value. Depending on the speed of the eurozone recovery, I expect shares to reach $35 within the next 18 months.

4. British American Tobacco (NYSE: BTI)
The third-largest tobacco company in the world with a market capitalization of $61 billion and presence in 180 countries pays a trailing annual dividend yield of almost 3%. It is also among the top holdings of  PEUGX and FGFAX. 

With a beta of 0.62, this “sin” stock would make a solid addition to anyone’s portfolio. Although the company is experiencing declining sales volume from several international markets, its Lucky Strike brand experienced a 19% volume increase in the first six months of the year. 

This stock has also pulled back from its highs but remains technically supported by its 200-day simple moving average. It’s up more than 9% in the past year, and there is also a triple-bottom support level nearly formed on the daily chart in the current $100 range. As long as price stays above the 200-day simple moving average, it’s a value zone technical “buy.” I wouldn’t be surprised to see shares approach the highs in the $108 range within the next 12 months. 

5. Diageo (NYSE: DEO)
Another “sin” stock on my list of companies likely to benefit from the improving eurozone economy, Diageo is the world’s largest producer of branded premium spirits. Household names like Johnnie Walker, Smirnoff, Captain Morgan and Guinness Stout are all part of the company’s successful products. It has a market cap of $74 billion and its stock is trading nearly 30% higher since June. The uptrend is stable with a three-year average annual return of 23%. Diageo’s boasts a beta of 0.78 and a 3% dividend yield.

[StreetAuthority’s Co-Founder Paul Tracy owns Diageo in his High-Yield International portfolio of reliable income.] 

Technically, shares have been climbing since the first week of June, reaching a high in the $116 area. Provided this company continues its strong uptrend and powerful product line, then my 12-month target should the breakout entry be triggered, is $123. 

Risks to Consider: Despite the signs of improvement, the eurozone remains a risky place to invest. Although I firmly think the worst is over, no one really knows for certain what’s going to happen in the future. Always position size properly based on your risk tolerance and use stops when investing.

Action to Take –> I like all five of these plays on the economic recovery of the eurozone. The two mutual funds are ideal for investors wanting expert diversification and bullish exposure to the improving economies. Hands-on investors looking for value, yield and possible strong upside would be well served with one or more of the three stocks I mentioned. Barring any unforeseen downturn, these three stocks could continue to thrive as the European economies slowly regain their strength.

P.S. — If you’re not looking internationally to build a reliable dividend portfolio, you’re missing out. Some of the richest, highest-quality dividends are found overseas. For more information about international dividend stocks, including names and ticker symbols, you must read StreetAuthority Co-Founder Paul Tracy’s latest presentation here.