‘A bigger tailwind than the US’: Morningstar strategists bullish on these 7 European stocks

Attractive returns and broader opportunities are among the many reasons why investors have historically preferred investing in the US over investing in Europe. However, one strategist is keeping a close eye on European stocks, noting that “Europe is not a boring market.” “There are a ton of growth stocks (and investors) that need to dig deeper than just the U.S., where growth is easy right now,” Michael Field, market strategist at Morningstar Europe, told CNBC Pro Type Stock. “Europe is in an interesting position structurally. If you look at the current macroeconomic environment, European equities may have a bigger tailwind than US equities” The Stoxx Europe 600 is climbing. The benchmark is up 6.05% year to date and around 17.5% over the past year. Field now expects the ECB to cut interest rates, a move he hopes will “boost economic growth and be a real catalyst for change in European stock markets.” “You can expect this to translate into increased returns for European companies on the stock market You could potentially see asset flows away from other regions, or increase exposure to European equities, which could improve again as equities in Europe increase market valuations. ,” she added. Field’s current investment strategy is to find defensive stocks in sectors that trade at a discount. Consumer Cyclicals In the consumer cyclicals sector, the field is bullish on UK housebuilders persimmons. “We believe Persimmon’s trading in the five-star sector will generate the most upside as housing conditions recover,” analysts at Morningstar wrote in their latest European stock outlook report, with the investment research firm giving the stock one to five star ratings. With the highest rating indicating a stock is undervalued. “Our analysts have been recommending this stock for some time. They think it’s further from here,” Field said. One of the opportunities he pointed to was a positive “structural picture” of UK homebuilding as there were not enough homes to meet growing demand. “While you may see some short-term slowdown, the long-term picture for the industry is very positive,” Field added. Another option in this industry is the five-star Swiss luxury watch and jewelry brand Swatch Group. Field said the luxury goods industry was a “great one”. “It is not immune to consumer downturns, but it has some protective properties,” he said, adding that demand for such products meets consumer demand. Even during recessions, the upper-income bracket has remained consistent. Shares of Swatch Group are down about 35.5% over the past 12 months, but the field sees potential in the stock. “It has a very strong brand and it’s getting to a point where it can turn around.” “We believe the stock can almost double from here, which makes this a very interesting and unusual opportunity.” He said, “Financial Services” Another industry that stands out is financial services. He sees value in payments, which he describes as “one of the most undervalued segments of financial services in Europe,” with “spot opportunities,” he added. Morningstar expects European bank profits to remain above sluggish levels of the past decade, as it does not expect European banks to return to the negative interest rate environment that prevailed for most of the past decade. The investment research house, whose top picks for the sector include Dutch four-star bank ING and British insurer Admiral Group, is also optimistic about the healthcare sector, which it calls “undervalued”. Trading below our overall estimate of underlying value. He said that apart from instruments and equipment, the rest of the healthcare industry appears to be severely undervalued. Morningstar noted in a recent report that the sector has underperformed the market and that valuations look “attractive” over the past 12 months. Field looks beyond headline makers like Novo Nordisk and sees potential in some lesser-known companies like immunology, oncology and biotech, with his top five-star picks being: Swedish radiotherapy company Elekta, German company Fresenius and Swiss pharmaceutical and diagnostics giant Roche. .