Barclays Identifies European Large-Cap Stocks Poised for Growth Amid Market Volatility
While global markets grapple with volatility and macroeconomic uncertainties, Barclays maintains a positive outlook for several large-cap stocks in Europe. Despite acknowledging the challenging market environment, the investment bank believes that not all recession indicators are flashing red, making a compelling case for selective investment opportunities.
Key Takeaways:
- Barclays remains optimistic about European large-cap stocks despite the current market volatility and potential economic headwinds.
- The investment bank has identified three under-the-radar stocks with strong potential for growth: DSV, NatWest Group, and Renault Group.
- Barclays highlights the positive tailwinds and robust earnings prospects of these companies, positioning them as attractive investment opportunities.
Navigating Market Volatility
Barclays acknowledges the inherent challenges of navigating summer markets, characterized by their notorious fickleness. The latest bout of volatility, potentially stemming from degrossing – financial institutions closing both long and short positions – may persist for weeks. Additionally, the upcoming U.S. elections will likely fuel further market uncertainty in the fall.
Despite this, the Stoxx 600, a benchmark index tracking European equities, has shown resilience. Although down month-to-date, it has maintained an impressive 8.1% year-to-date gain.
Barclays’ Sector Preferences
Barclays demonstrates a clear preference for certain sectors within the European market:
- Financials: The investment bank is overweight on financials, driven by their strong earnings potential.
- Utilities: Given their stability and resilience in challenging economic conditions, utilities are considered attractive.
- Real Estate: The real estate sector is also favored by Barclays, as it benefits from ongoing investment and a gradual economic recovery.
- Cyclicals: Cyclicals are expected to benefit from an eventual economic rebound, contributing to Barclays’ overweight position.
Within these sectors, technology, retail, aerospace/defense, and chemicals are seen as particularly compelling.
Three Under-the-Radar Stocks with Growth Potential
Barclays has identified three European large-cap stocks that offer attractive investment opportunities:
DSV: A Logistics Powerhouse
Barclays is bullish on DSV, a Danish transport and logistics company, predicting a strong second half of 2024. Analyst Marco Limite highlights the positive tailwinds impacting DSV’s profitability across its divisions. Limite expects cost savings to contribute an additional 180 million Danish Krone ($26.4 million) to profitability.
"We think DSV’s organic strategy of gross profit expansion and above-market volume growth is still not well appreciated," Limite asserted. This strategy, combined with the fact that roughly 40% of DSV’s gross profit comes from its top 200 customers, reinforces its strong market position.
DSV shares are listed on Nasdaq Copenhagen and trade as an American Depository Receipt (ADR) in the U.S. With a year-to-date gain of around 6.8%, DSV’s shares have already demonstrated their potential. Barclays holds a target price of 1,510 Danish Krone for the stock, representing a potential upside of approximately 20%.
NatWest Group: A Resurgent Bank
Barclays designates NatWest Group, a British bank, as one of its "preferred names" among European banks. This preference stems from its "sector-leading EPS [earnings per share] momentum and ongoing earnings upside potential driven by a best-in-class structural hedge tailwind," according to analysts Aman Rakkar and Grace Dargan.
These factors, they emphasize, significantly mitigate the impact of falling interest rates. Moreover, NatWest is poised to benefit from a structural re-rating fueled by the UK government’s impending exit from the European Union, diminishing political risk and improved macroeconomic prospects.
Shares of NatWest Group are listed on the London Stock Exchange and trade as an ADR in the U.S. Demonstrating a strong year-to-date performance, the shares have climbed by around 58%. Barclays holds a target price of 460 pence ($5.9) for the stock, indicating a potential upside of 36%.
Renault Group: A Resurgent Automaker
Renault Group, a French automobile manufacturer, also makes Barclays’ list of promising stocks. Although its shares have experienced a relative decline of 16% compared to the SXAP performance of -10% at the time of publication, analysts Henning Cosman and Arya Ghassemieh remain optimistic.
"Strong company-specific factors and near-term earnings resilience (absolute and vis-à-vis consensus) as key positives for [Renault’s] equity story," stated Cosman and Ghassemieh. They commend the management team’s strong track record of execution and its "substantially improved product portfolio." This improved portfolio has already translated into robust volume-price-mix and is expected to contribute to continued strong mix in 2024E/25E.
Renault’s shares are traded on the Euronext Paris Exchange and in the U.S. as an ADR. The company’s shares have demonstrated a solid year-to-date performance, with a gain exceeding 12%. Barclays has set a target price of 60 euros ($65.8) for the stock, suggesting nearly 50% upside potential.
Navigating Uncertainties with a Focused Approach
While acknowledging the complexities of the current market environment, Barclays remains confident in its assessment that these specific stocks offer significant growth potential. By maintaining a focused approach and leveraging its expertise, the investment bank aims to guide investors towards opportunities for success even amidst a backdrop of volatility and uncertainty.