As German elections have ended in a resounding victory for Angela Merkel, the Italian Summer Truce may be coming to an end. That means that political turmoil may follow news of the country through the Autumn as the coalition government at the head of the Mediterranean nation tries to return the country to economic growth.

Despite the difficulties ahead for Italy, a new Citigroup report on the country, led by analyst Mauro Baragiola, sees value among the country’s stocks. The buys for the Citigroup Inc. (NYSE:C) analysts include Fiat SpA (BIT:F), Autogrill SpA (BIT:AGL), and Prada SpA (HSK:1913), among others.

Valuing Italy

The analysis from Citigroup Inc. (NYSE:C) doesn’t follow the narrative that Italy is due to rebound in the second half of the year as the wider European economy gets back to work. It does, however, assert that investors are so familiar with the country’s problems that they might be willing to invest anyway. This is described by the analysts as a ‘the devil they know’ attitude.

If the gloomy predictions about the Italian political atmosphere in the report do not come true, the analysts believe that the Italian equities market could even offer attractive returns in the second half of the year. Italian multinationals, like Prada SpA (HSK:1913) and Fiat SpA (BIT:F), have performed much better than the main index in recent years.

italy

The above chart shows the general valuation of Italian stocks. It’s clear that the general value of the Italian market has fallen massively in recent years, and the Citigroup analysts think the country could offer some very valuable opportunities, but only for those brave enough to risk the markets pricing of Italian political and social problems.

Investing in Italy

Italian companies with large exposure to international markets are much more likely to be successful in the coming years than those beholden to the vagaries of the Italian economy. The big companies referenced in the Citigroup Inc. (NYSE:C) report include Prada SpA (HSK:1913) and Fiat SpA (BIT:F), but there is some light for companies with more exposure to Italy.

Autogrill SpA (BIT:AGL) is going to split into two different companies on October 1. The two companies resulting from the demerger are Autogrill SpA (BIT:AGL) and World Duty Free SpA (BIT:WDF). About half of the Autogrill business comes from the United States. The companies are, according to the Citigroup analysis, on their way to becoming Italian companies that are not associated with Italy, and that’s a good thing in their views.

Two of the other companies mentioned in the report are Prada SpA (HSK:1913) and Fiat SpA (BIT:F). those companies are primed to grow on the recovery of the international economy, and particularly that of the United States.

Italy is a risky country to invest in, and the companies that this report suggests are mostly what it calls “Italian misnomers.” The bottom line appears to be that the best value in Italy is in companies that aren’t really Italian.