(FORTUNE Magazine) – Looking to buy the stocks of great companies at a discount? Try a Eurobargain. While many European exchanges have already chalked up big gains this year, most still trade at nearly half the price/earnings multiple of Standard & Poor's 500-stock index. Says Norman Kurland, who manages the $650 million international part of the Pioneer II fund: ''There's easily a 20% gain left in Europe over the next year. I just don't see that in the U.S.'' Kurland has an eye for winning markets: His portfolio of non-U.S. stocks returned 22% last year, vs. a 12.4% average for international mutual funds tracked by Lipper Analytical. The extra oomph for Europe's bourses will come partly from the prospect of improved corporate profits as the Continent's economies begin to climb out of recession. But the bigger boost, analysts say, will come from declining interest rates. While inflation in most European countries is down to around 4%, short-term rates still hover near 10%, resulting in record-high real interest rates. Central bankers at most European countries are ready to trim rates now but, mindful of their currencies, are waiting for Germany's powerful Bundesbank to act first. Economist David Roche, global strategist at Morgan Stanley in London, thinks the Bundesbank will cut rates soon, perhaps by the end of summer, because Germany's economy, previously among the strongest in Europe, has been slowing sharply. That act may even be speeded by the Danish vote in June not to ratify the treaty on European economic integration. Roche believes the vote will strengthen the deutsche mark as traders flock to the strongest currency, so German authorities will be under pressure to counter with lower interest rates. Beyond that ripple, the Danish vote should have no significant effect on the outlook for European stocks, analysts say. The nations of Europe have been headed toward a convergence of monetary policy for some time and will continue on that path because it is in their interest to pursue a unified anti- inflation course. Says Bert Jansen, European equity strategist at Paribas Capital Markets Group in London: ''Nothing fundamental has changed.'' So where will the bull run with the most panache? Many portfolio managers are placing their bets on France. The economy is improving, inflation remains low, and the bourse is beginning to bounce. Says Kurland: ''France is the classic case of an interest-sensitive stock market because of all the short- term money on the sidelines.'' Some 1.3 trillion French francs ($240 billion) sit in short-term accounts earning close to 10%; when interest rates start to drop, Kurland thinks, much of this will seep into the equity market, much like the CD money that flooded U.S. stocks as America's interest rates fell. The easiest way to take a broad swipe at France is by buying shares of the France Growth Fund, a closed-end fund that trades on the Big Board at a 16% discount to net asset value. Kurland is buying stocks that will benefit from a Franco-recovery, such as Michelin, the tiremaker, which recently went through a brutal restructuring, and Generale des Eaux, a conglomerate that includes a water utility, a construction company, and an environmental cleanup business. To buy these stocks, American investors will pay more in commissions than for U.S. stocks, but the values overseas can make that worthwhile. The Dutch market, says Bert Jansen at Paribas, is also set for a re-rating. Among the least expensive in Europe, it trades for 11 to 12 times next year's earnings estimates, vs. P/Es of 14 to 16 elsewhere in Europe. ''There's no reason the market shouldn't trade more in line with the rest of Europe,'' Jansen says. Real bottom fishers may want to stake out Spain. Inflationary pressures have kept interest rates high and the market's valuation lower than all others in Europe. But rates there should follow Germany's down too. Closed-end investors can buy the Growth Fund of Spain, which sells at 15% below its net asset value. Some analysts think the biggest gains will be found back in Frankfurt, where companies have strong international footing. Says Steven Nagourney, international strategist at Lehman Brothers: ''Germany is early in the cycle of a big bull market.'' He says investment in the East should start to pay off for corporate Germany by early next year as that part of the country starts to grow. Meanwhile, Germany's well-tuned export machine will benefit from the pickup in world demand for capital goods. He's buying heavyweights such as Mannessman, Seimens, Daimler-Benz, and Volkswagen, all of which are available through ADRs. He also recommends the Future Germany Fund, which trades at a 15% discount to its net asset value.

CHART: NOT AVAILABLE CREDIT: SOURCES: OECD, MORGAN STANLEY CAPITAL INTERNATIONAL JIM MCMANUS FOR FORTUNE CAPTION: FOUR BOURSES THAT COULD BOOM