Attractive returns and breadth of opportunities are among the many reasons why investors have historically preferred to invest in the United States over Europe. One strategist, however, takes a close interest in European stocks and notes that “Europe is not a boring market.” “There are a very large number of growth stocks [and investors] You just have to dig a little deeper than in the U.S., where it’s extremely easy to find growth names at the moment,” Michael Field, Morningstar’s European market strategist, told CNBC Pro in March. Europe finds itself in an interesting structural position. If you look at the current macroeconomic environment, European stocks could potentially benefit from a more tailwind than those in the United States. The European Stoxx 600 index is rising. The benchmark index is up 6.05% year to date and up almost 17.5%. % over the past year. Field now expects the European Central Bank to cut rates, a move he says will be “a boost to economic growth and a real catalyst for change within Europe’s stock markets.” up to the stock market in terms of corporate profit growth in Europe. What we could also see are asset flows potentially moving from other regions, or increased exposure to European stocks, which, again, could increase as equity market valuations increase in Europe,” he added. Field’s current investment strategy is to look for defensive stocks across all sectors that are trading at a discount. Consumer Cyclicals In the consumer cyclical sector, Field is bullish on British housebuilding company Persimmon “Trading in 5-star territory, Persimmon offers the greatest upside potential as housing conditions recover, in our view,” wrote analysts at. Morningstar in its recent European Stock Outlook report gives stocks a rating of between one and five stars, with the highest rating indicating the shares are undervalued. “Our analysts have been recommending this stock for some time. They think the stock has more room to go from here,” Field said. Among the opportunities he flagged is a positive “structural picture” for UK housebuilding, as there are not enough homes to meet growing demand. “While you may see some “It’s kind of a slowdown in the short term, but longer term the picture is very positive for the industry,” Field added. Another industry pick is the Swiss watch brand and five-star luxury jewelry, Swatch Group “It is not immune to a slowdown in consumption, but it is and has some defensive qualities,” he said, adding that. demand for such products, which are aimed at the upper income bracket, remains constant, even in times of economic downturn. Shares of the Swatch Group have plunged almost 35.5% over the last 12 months. but Field sees potential in the title “It has a very strong brand and it’s getting to the point where. they will be able to reverse the situation. “We think the stock could almost double from here, which would make it a very attractive and unusual opportunity in the luxury sector,” he said. Financial Services Another sector that stands out to Field is financial services. He sees value in payments, which he describes as “one of the most undervalued elements of European financial services”. Other segments offering “one-off opportunities” include banks and insurance players, he added. Morningstar expects European bank profitability to remain above the depressed levels recorded over the past decade, as it does not foresee a return to the negative interest rate environment that prevailed for most of the previous decade. The investment research firm’s top picks in the sector include four-star rated ING Bank of the Netherlands and UK insurance company Admiral Group. Healthcare Field is also bullish on the healthcare sector, calling it “undervalued.” “Our healthcare coverage is trading below our overall intrinsic value estimate. Besides instruments and devices, other healthcare sectors appear significantly undervalued,” he said. The sector has lagged market performance, with valuations looking “attractive” over the past 12 months, Morningstar noted in its recent report. Field looks beyond big names like Novo Nordisk and sees potential in some lesser-known companies in areas like immunology, oncology and biotechnology. Its top picks to play the theme are five stars: Swedish radiotherapy company Elekta, German company Fresenius and Swiss pharmaceutical and diagnostics giant Roche.
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