In the coming months, the European stock market could grow faster than the American one. Here are the shares that Goldman Sachs suggests having in your portfolio with an upside of up to 30%.
Goldman Sachs predicts that European stocks will be worth watching through 2025. In a recent report, the prestigious bank invited investors to look beyond the Atlantic and suggested investment opportunities in Europe. With strong balance sheets, attractive cash flows and constantly growing shareholder returns, the European landscape is a gold mine for the most attentive investors. The return prospects could reach record levels by 2025, with the forecast of a flow of remuneration to shareholders equal to 500 billion euro, among the stocks of the European Stoxx 600.
This scenario offers a 5% return. The yield spread between European stocks and US stocks has widened, making European stocks more attractive.
The STOXX 600 Index currently trades at approximately 15 times the price-to-earnings (P/E) one-year forward, while the S&P 500 Index is trading at 26 times P/E: a lower multiple indicates a more attractive investment opportunity.
Not all stocks offer the same opportunities: Goldman Sachs has carefully selected a mix of stocks that combines growing dividends and buybacks for a successful portfolio. Let’s see what the 5 European stocks recommended by Goldman Sachs are, each with unique characteristics and strong growth potential until 2025.
1. UniCredit
- Unicredit weekly graph
- Source: Tradingview
UniCredit is one of the most interesting European shares to hold in your portfolio until 2025, according to Goldman Sachs. With a target price of 44.70 euro, the Italian banking giant offers growth potential of 28% compared to current levels. This positive outlook is based on solid fundamentals and a robust business model that could thrive even in a lower interest rate environment.
Goldman Sachs expects UniCredit to maintain a solid capital level between 2023 and 2025, with a CET1 above 15%. Furthermore, the bank’s net interest income is expected to remain resilient even with any rate cuts. The forecast of distribution of approximately 20 billion euros of capital in the period 2021-2024 exceeds the initial target of 16 billion total return on capital, corresponding to over 50% of the current market capitalization.
Furthermore, Unicredit is among the top pick of Mediobanca Research in the European banking sector. With an average 20% increase in EU bank shares since the beginning of the year, the market is starting to recognize the value of the sector and the generous shareholder remuneration approach.
Although future decisions by the European Central Bank could affect interest rates, the banking sector seems less concerned than in the past. Rate cut expectations, previously expected in 2023, are now seen as less drastic. Although the ECB has not provided explicit indications of possible reductions, some analysts predict a possible cut starting in June.
2. Stellantis
- Unicredit weekly graph
- Source: Tradingview
Stellantis is one of the European shares that have been chosen by Goldman Sachs. The bank recommends buying the stock with a target price of 28 euros, as they believe there is potential for growth. However, the stock lost over 9% after the quarterly results were announced on Tuesday, 30 April. The Franco-Italian automaker, which owns popular brands such as Peugeot, Fiat, Jeep, and Alfa Romeo, saw its net revenue decline by 12% in the first quarter of 2024, falling to 41.7 billion euros, below analysts’ expectations of 42.6 billion euros.
There are several causes for this decline: reduced volumes, a less advantageous product mix, and unfavorable currency fluctuations. However, Stellantis has ambitious plans to recover in the second half of the year thanks to the launch of new models and more efficient inventory management. CFO Natalie Knight explained that the group is working to reduce inventories ahead of new product launches, which should help maintain stronger pricing. Stellantis plans to introduce 25 new models in 2024, including 18 electric, with four already released in the first quarter.
Among the new releases, the RAM 1500 truck, the Peugeot E3008 electric SUV, the low-cost electric Citroen eC3, and the Wagoneer S from Jeep in the United States stand out. These new products, combined with better product mix management, could drive significant growth and improve profitability in the second half of the year.
Despite the contraction in revenues, Stellantis remains confident in its prospects for 2024. The group expects a double-digit adjusted operating profit (EBIT) margin and positive industrial free cash flow. Furthermore, the ordinary dividend increased by 16% compared to the previous year, reaching 1.55 euros per share, and the company announced a share buyback plan of 3 billion euros. With this data, Stellantis presents itself as a solid and attractive choice for a diversified portfolio through 2025.
3. Novartis
- Novartis weekly graph
- Source: Tradingview
Novartis is part of the Granolas, an acronym created by Goldman Sachs to identify the most promising European stocks. It is listed on the Swiss Market Index and the New York Stock Exchange (NYSE).
The Swiss pharmaceutical giant also received an update on the target price from BMO Capital Markets, which set the new estimate at 116 dollars, compared to the previous 114 dollars, maintaining a “Market Perform” rating. This rally follows the company’s strong performance in the first quarter of 2024, with a 9% growth in core revenue and a 13.6% increase in core operating profit. This positive trend has led Novartis to improve its financial outlook for the full year, supported by successful drugs such as Cosentyx, Kisqali, Pluvicto, and Scemblix, whose data were presented at the meeting of the American Society of Clinical Oncology (ASCO).
The global pharmaceutical industry is a booming sector, expected to generate more than $1.16 trillion in sales in 2024. The oncology segment alone is expected to generate $214 billion in sales. According to Statista, the industry will grow at an annual rate of 6.2%, reaching $1.47 trillion by 2028. Novartis is positioned well in this context thanks to its broad range of drugs and the recent increase in financial guidelines.
Bank of America also raised its EPS estimates for 2024, 2025, and 2026, thanks to Novartis’ strong first-quarter performance and optimism about the near-term outlook. Analyst Parry says Novartis is generating notable momentum in earnings per share and could beat consensus estimates for sales growth in the medium term. Bank of America maintains a "buy" rating and $129 price target on NVS shares, well above the $97.44 recorded on April 26.
With a market capitalization of $215.8 billion and a P/E ratio of 17.94 based on the trailing twelve months to the fourth quarter of 2023, Novartis offers an attractive and potentially profitable investment profile. The combination of a strong drug portfolio and continued growth prospects makes Novartis a stock to seriously consider through 2025 and beyond.
4. Shell
- Shell weekly graph
- Source: Tradingview
Shell Plc (SHEL), founded in 1907 and based in London, is a leading company in the energy and petrochemical sector, active in multiple segments: integrated gas, upstream, marketing, chemicals, renewable energy, and energy solutions. With a market capitalization of $231.1 billion, Shell plays a key role in the exploration, extraction, transportation, and sale of crude oil, natural gas, and natural gas liquids.
Over the past 52 weeks, Shell shares have risen 19.5%, with the stock now trading at 8.78 times forward earnings and 0.72 times sales, lower than the industry average, signaling an attractive growth potential. In 2023, Shell distributed $23 billion to shareholders and announced a new $3.5 billion share buyback program, to be completed by May 2024.
Shell recently increased its quarterly dividend by 4% to $0.69 per share, with an annualized dividend of $2.75, equivalent to a yield of 3.8%. With a low payout ratio of 29.4%, Shell has room to further increase its dividend, offering its shareholders an attractive return on investment.
Fourth quarter 2023 results beat expectations, with adjusted earnings of $7.3 billion and revenue of $78.73 billion. Cash flow from operations was $54.2 billion for the full year, with 42% distributed to shareholders. Shell has a "Strong Buy" consensus rating, with eight analysts strongly recommending it and three suggesting hold.
Shell CEO Wael Sawan announced a two-and-a-half-year plan to reduce costs and increase returns for investors, aiming to increase the value of shares by 2025. With an average price target of 75, 17 dollars, analysts expect an increase of 3.5%, but Goldman Sachs estimates a growth potential of up to 17%.
While Shell is a dominant player in the energy sector, it faces challenges related to environmental, social, and governance (ESG) issues, with many European investors shunning fossil fuels. However, as the largest company in the FTSE 100 index and a strong dividend payer, Shell remains a solid choice for those looking for a stable investment with growth potential until 2025.
5. Kingfisher
- Kingfisher weekly graph
- Source: Tradingview
Kingfisher is a major British household goods retail company, owner of the B&Q and Screwfix brands, which operate across Europe. The company continues to implement a share repurchase strategy as part of its commitment to returning value to its shareholders. On 25 April 2024, Kingfisher bought 200,000 of its own shares for cancellation, as part of a £300 million program announced in September 2023. The shares were acquired through Goldman Sachs International on the London Stock Exchange at prices between 2.4550 and 2.5060 pounds per share. This recent transaction follows the repurchase of over 26 million shares in previous tranches, showing Kingfisher’s determination to reward its shareholders.
This buyback strategy, combined with an expected dividend yield of 4.8% over the next 12 months, as estimated by analysts at Goldman Sachs, makes Kingfisher an attractive option for investors looking for yield and stability. The company’s commitment to returning value through buybacks and strong dividends suggests that Kingfisher is moving in the right direction, maintaining its focus on creating value for its shareholders.
With well-known brands and a strong presence in the European DIY market, Kingfisher continues to prove itself as a key player in the home improvement retail sector. This combination of strategic growth and consistent returns could position Kingfisher as an attractive choice for investor portfolios through 2025.
|DISCLAIMER
The information and considerations in this article should not be used as the sole or primary basis for making investment decisions. The reader retains full freedom in his own investment choices and full responsibility in making them, since he alone knows his risk propensity and his time horizon. The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation to public savings.|
Original article published on Money.it Italy 2024-05-01 22:04:00. Original title: 5 azioni europee da avere in portafoglio fino al 2025 (secondo Goldman Sachs)
