Morgan Stanley recently updated its list of the best European stocks. The note mentions the new additions, the underlying selection process and performance compared to major indices.
Morgan Stanley’s European Top Picks have consistently outperformed the broader market since their launch in September 2021.
The selected stocks achieved a total return that exceeded the MSCI Europe index by 17.2 percentage points and the equally weighted MSCI Europe index by 28.7 percentage points.
The latest update to Morgan Stanley’s European Top Picks list includes six new stocks: Barclays, Fresenius SE (ETR:), Getlink, Rheinmetall, Saipem and Total. These companies were selected based on their strong fundamentals, strategic positioning and potential to outperform in the current market.
Barclays, a major UK financial institution, is well positioned to benefit from the Bank of England’s interest rate hikes. The bank’s strong capital position and solid asset quality make it resilient to the challenges of a higher interest rate environment.
In addition, Barclays’ diversified business model, which includes a robust investment banking division, enables it to capitalize on growth opportunities in various segments of the financial market.
Fresenius SE is well positioned to benefit from the increasing demand for healthcare services. As the world recovers from the COVID-19 pandemic, the global healthcare company is expected to see a recovery in scheduled surgeries and other non-urgent medical procedures.
Fresenius SE’s strong presence in European and international markets ensures diversified revenue streams and makes the company a stable growth option in the healthcare sector.
Getlink, the operator of the Channel Tunnel, is well placed to benefit from growing travel and trade between the UK and Europe.
With increasing cross-border mobility, it is expected that the company’s infrastructure facilities will be used more intensively.
Furthermore, Getlink’s investments in sustainable transport solutions are in line with the European Union’s efforts to reduce CO2 emissions and potentially create new growth opportunities.
Rheinmetall is likely to benefit from increased demand for its products due to increasing geopolitical tensions and a renewed focus on defense spending in Europe.
The defense technology company’s portfolio includes advanced military technology and vehicles, which are expected to see increased orders as EU countries strengthen their defense capabilities. Rheinmetall’s good relations with European governments and its reputation as an innovative defense technology provider further enhance the company’s growth prospects.
Saipem is currently undergoing a restructuring process designed to position the company for future growth. As the global energy market continues to recover, Saipem’s expertise in offshore drilling and energy infrastructure is expected to be in high demand.
Furthermore, the engineering and construction company’s renewable energy initiatives are in line with the increasing importance of sustainability in the energy sector and offer a promising opportunity for future growth.
Total is one of Europe’s largest energy companies with a strong balance sheet and a diversified portfolio that includes both traditional energy sources and investments in renewable energy.
With strategic investments in solar, wind and hydrogen projects, the company is well positioned for the energy transition.
In addition, Total’s robust upstream activities ensure that the company remains a major player in the global energy market, while its commitment to reducing carbon dioxide emissions positions the company well for future regulatory frameworks.
Morgan Stanley’s European Top Picks are selected through a rigorous process that includes detailed analysis by equity research teams. Stocks selected for the list carry an Overweight rating, meaning that analysts expect these stocks to outperform their respective industry peers. The selection process also takes into account the broader market environment, industry trends and specific company fundamentals.
The underlying strategy focuses on identifying stocks with attractive risk-return profiles and significant upside potential under different market conditions.
Morgan Stanley analysts continually monitor these recommendations and make adjustments as needed to reflect evolving market dynamics and company performance. This approach ensures that the top recommendations remain relevant and consistent with the current investment environment.
The inclusion of defensive and cyclical stocks demonstrates a balanced approach that aims to achieve stability and capitalize on growth in sectors that are on the verge of recovery or expansion.
Barclays and Total, for example, offer exposure to financials and energy, respectively, which are expected to benefit from rising interest rates and the global energy transition.
In addition, companies such as Fresenius SE and Rheinmetall offer more defensive growth opportunities in the healthcare and defense sectors.
