A surge in inflation, an upheaval in monetary policy, a war in Ukraine and a recession that seems increasingly likely: the first half of 2022 has seen a collapse in global stock markets. The Old Continent was of course no exception: the Morningstar Europe NR index has lost 13% since the start of the year (data in euros, as of July 28).
According to Morningstar research, European stocks are significantly undervalued today: the median stock in our European coverage universe is trading at a 17% discount to its estimated fair value (as of July 28), making of Europe the cheapest region to invest in equities.
Of course, paying an attractive price is important, but market discounts should not obscure another crucial aspect of stock picking: quality. In the table below, we list the twelve most undervalued European stocks among those with a wide or narrow economic moat rating, a stable or positive moat trend, a low or medium degree of uncertainty in the fair value estimate and a 5-star Morningstar rating. Stock rating (5 stars means undervalued, 1 star means overvalued).
These are therefore companies that Morningstar analysts attribute to a stable competitive advantage and which are currently trading at particularly advantageous prices, compared to our estimate of their fair value.
Two of these twelve companies have a wide economic moat according to Morningstar.
Elekta AB
Stock ranking: ★★★★★
Economic Gap: Wide
Fair value: 127 SEK
Degree of uncertainty: Medium
The Swedish company Elekta develops, manufactures and distributes treatment planning systems for neurosurgery and radiotherapy, including stereotactic radiosurgery and brachytherapy. Despite the pandemic, the demand for radiotherapy is expected to remain strong over the next decade. Elekta should benefit, but its success depends on its ability to bring Unity to market and withstand competition from Varian under the Siemens Healthineers umbrella.
“We believe the entire industry has a mid-single-digit growth trajectory post-pandemic, but Elekta’s more favorable geographic mix, Unity’s outlook and currently smaller share support our guidance slightly. higher than 7% to 8% growth per year,” said Alex Morozov, regional director of Morningstar.
Anheuser-Busch InBev SA/NV
Stock ranking: ★★★★★
Economic Gap: Wide
Fair value: 80 EUR
Degree of uncertainty: Medium
Anheuser-Busch InBev is the world’s largest brewer and one of the world’s top five consumer products companies, based on EBITDA (Earnings before interest, taxes, depreciation and amortization). The company has a history of buying brands with promising growth platforms and then expanding distribution while ruthlessly cutting business costs, which contributes to the company’s exemplary Morningstar Capital Allocation Rating. “AB InBev has one of the strongest cost advantages in our defensive consumer coverage and is among the most efficient operators,” said Philip Gorham, director of Morningstar. We believe the market has long undervalued AB InBev stock.
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The information it contains is for educational and informational purposes ONLY. It is not intended and should not be considered an invitation or inducement to buy or sell any security(s) shown therein nor should it be considered a communication intended to persuade or induce you to purchase or to sell one or more securities indicated therein. Any feedback provided is the opinion of the author and should not be considered a personalized recommendation. The information it contains should not be a person’s sole basis for making an investment decision. Please contact your financial advisor before making any investment decision.