In this article, we discuss the 10 best European stocks to buy now.
Europe is experiencing tough economic conditions as the energy crisis following the conflict between Russia and Ukraine in February 2022 has caused industries and consumers to face soaring energy prices. The region was already under pressure due to inflation and the gap between the post-pandemic pent-up demand and constrained supply across numerous sectors. The European Central Bank is now attempting to control inflation by raising benchmark interest rates. The increase in benchmark interest rates raises concerns about an economic slowdown and even a recession. However, experts believe that investors should have a positive stance on European stocks despite the grim economic outlook for the region. Experts highlight three key reasons to remain optimistic about European stocks.
Firstly, the weak economic outlook has already been priced in, resulting in a valuation gap between European and American stocks. The market has factored in the energy crisis as well. This is reflected by the fact that some of the best European stocks are trading below their long-term average valuations and at a steep discount compared to their US counterparts. It is widely believed that the leading European stocks have the potential to provide solid value to investors who have a long-term investment horizon and are focused on leveraging the current uncertainty in the market. Numerous European companies are aggressively pursuing long-term structural trends like net-zero greenhouse gas emissions, which provide investors an opportunity to go long at a very cheap valuation.
Secondly, despite all the uncertainty, Europe is still home to notable corporations that can survive periods of high inflation and weak economic growth. Numerous companies such as ASML Holding N.V. (NASDAQ:ASML), Shell plc (NYSE:SHEL), and BP p.l.c. (NYSE:BP) are considered among the leading European companies as they have solid business models with healthy profit margins, allowing them to generate stable cash flows over a long period of time. These companies have a secure future due to a strong end market for their products and services. Such companies are present in every sector of the economy, but careful consideration must be given to selecting the right companies.
Lastly, experts believe that some European companies can play a significant role in aiding governments across the world in achieving net-zero greenhouse emissions levels. The European Union (EU) is working on reducing its greenhouse gas emissions level by 55% as compared to the 1990 level. The bloc intends to reach the target of net-zero greenhouse gas emissions by 2050. Another emerging trend is the switch towards solar and wind energy to reduce reliance on natural gas. The EU intends to triple its solar and wind energy generation by 2030. This would result in a saving of 170 billion cubic meters of natural gas annually. European companies working or transforming towards renewable energy would directly benefit from these developments.
Image by Sergei Tokmakov Terms.Law from Pixabay
Our Methodology
To shortlist the 10 best European stocks, we have looked at the emerging trends in the region and have picked companies that are expected to give the best possible long-term returns to investors. We have analyzed the expansion plans of these companies along with the analyst ratings. The level of hedge fund ownership as of Q2 2022 has been used to rank these stocks.
10 Best European Stocks to Buy Now
10. ING Groep N.V. (NYSE:ING)
Number of Hedge Fund Holders: 10
ING Groep N.V. (NYSE:ING) is an Amsterdam, Netherlands-based bank. The company has a headcount of over 57,000 employees and a customer base of over 37 million customers spread across 40 countries.
ING Groep N.V. (NYSE:ING) is a market leader in Belgium, Luxembourg, and the Netherlands and considers Poland, Romania, and Turkey as growth markets. Analysts consider ING Groep N.V. (NYSE:ING) as one of the best European stocks as it provides a healthy forward dividend yield of 11% as of September 30. In a research note issued on September 6, Raul Sinha at JPMorgan increased the price target on ING Groep N.V. (NYSE:ING) from $12.48 to $12.67 and reiterated an Overweight rating on the stock. ING Groep N.V. (NYSE:ING) has emerged as a beneficiary of the support given to energy companies by European governments to avoid a series of defaults.
ING Groep N.V. (NYSE:ING) was discussed in the Q4 2021 investor letter of Artisan Partners. Here’s what the firm said:
“While European bank stocks generally did well in 2021, ING performed exceptionally well—up almost 70% in euros. ING is the largest domestic lender in the Benelux and also has fintech operations with strong market positions in major markets including Australia, Germany, Spain, France, Italy and several Eastern European markets. ING is profitable, and it operates with significant excess capital that it’s accumulated over several years through retained earnings. The pandemic’s onset led to a regulatory moratorium on distributions to shareholders, who reacted by pushing the share price down to levels last seen during the 2008 financial crisis. Back in 2008, ING was thinly capitalized, overdiversified and losing money—a very different profile from its profitable and overcapitalized position in 2020. We saw this as an opportunity and increased our position, and the price rebounded 60% from the 2020 bottom. Even after that impressive gain, the shares remained cheap, trading at 58% of book value—though even that simple statistic understates the undervaluation. At the time, the bank carried an estimated €12 billion of excess capital on a market cap of €30 billion. Net of that excess capital, the shares traded at 4.6X our estimate of normalized earnings. In 2021, conditions changed. The pandemic receded, leading to relaxed regulatory restrictions on shareholder distributions. In addition, profits boomed as provisions set aside for pandemic-era credit losses proved unnecessary. Additionally, a new CEO appointed in July 2020 has done a great job focusing the business on profitable geographies. Changes to the business have both improved profitability and increased the company’s already overcapitalized balance sheet. The share price has rebounded close to book value—a much more reasonable valuation.”
Fisher Asset Management is the biggest hedge fund investor in ING Groep N.V. (NYSE:ING), with a stake of over $556 million as of Q2 2022.
9. HSBC Holdings plc (NYSE:HSBC)
Number of Hedge Fund Holders: 14
HSBC Holdings plc (NYSE:HSBC) is a London, UK-based diversified banking and financial services company. The company distinguishes itself as one of the biggest financial entities in the world, with a presence in over 63 countries, providing services to 40 million customers.
Shenzhen, China-based Ping An Insurance is the biggest shareholder of HSBC Holdings plc (NYSE:HSBC), with a stake of over 8.4% in the company. Ping An is actively working on spinning off the Asian business of the bank. According to experts, this could unlock an additional value of $25 billion to $35 billion for HSBC Holdings plc’s (NYSE:HSBC) shareholders. This is because the highly profitable Hong Kong business will be separated from the global unit that does not match the profit generation ability of the Asian business. Furthermore, a breakup would also free HSBC Holdings plc (NYSE:HSBC) from holding an additional $8 billion as a regulatory capital requirement.
In early August, HSBC Holdings plc (NYSE:HSBC) also announced its plans to resume paying dividends the next year. The company’s dividend ratio is expected to reach 50% in the following two years. Furthermore, in Q2 2022, the company reported a YoY increase of 13% in its adjusted profit before tax, while the non-interest income observed a YoY rise of 2%.
Balyasny Asset Management raised its stake in HSBC Holdings plc (NYSE:HSBC) by over 170% during Q2 2022.
8. SAP SE (NYSE:SAP)
Number of Hedge Fund Holders: 16
SAP SE (NYSE:SAP) is a Walldorf, Germany-based enterprise software company that works closely with over 22,000 companies. SAP SE (NYSE:SAP) has over 100 development locations and over 230 million users of its cloud services.
Experts believe that SAP SE (NYSE:SAP) stock provides an attractive entry point for investors that are looking to benefit from the cloud adoption trend. Since 2020, the size of the cloud business has grown at a CAGR of 20% and is on its way to contributing 50% to the top line of SAP SE (NYSE:SAP) this year. In terms of revenue, SAP SE (NYSE:SAP) is the biggest software company based outside the US. Despite the uncertain macroeconomic conditions, SAP SE (NYSE:SAP) has still reported revenue of $15.7 billion, along with an operating profit margin of over 25% since the start of this year. The company has secured a position on our list of the ten best European stocks due to its secure financial health and long-term growth prospects.
Polen Capital shared its outlook on SAP SE (NYSE:SAP) in its Q1 2022 investor letter. Here’s what the investment management firm said:
“In our opinion, SAP is demonstrating that their cloud transition and RISE with SAP strategy are working. We added to our position upon evidence that CEO Christian Klein’s strategy is bearing fruit, and the stock trading down to an attractive valuation during the quarter. The strategy and sell-off are connected, and we believe it provided an opportunity for long- term shareholders. The company recently reported weak 2022 margin and FCF guidance. This was expected if cloud growth accelerated – which it has. Current cloud backlog has accelerated to a mid-20% growth rate, and the S/4 HANA Cloud Backlog and Cloud Sales have accelerated as well. Cloud, which tends to be a very sticky business with high recurring revenue, is now a >$10bn business and represents roughly 40% of sales.
Our research shows this should only increase over the next five years. If management continues to successfully execute its strategy, the transition should create a mechanical lift to margins and greater levels of FCF. We believe SAP is a durable business led by capable management that is poised to deliver high-quality mid-teens earnings growth over the next five years.”
7. TotalEnergies SE (NYSE:TTE)
Number of Hedge Fund Holders: 20
TotalEnergies SE (NYSE:TTE) is a Courbevoie, France-based integrated energy company that is engaged in the production of conventional and renewable energy sources. The company is present in over 130 countries and employs over 100,000 individuals. TotalEnergies SE (NYSE:TTE) aims to become a sustainable energy giant.
On September 26, Christyan Malek at JPMorgan upgraded TotalEnergies SE (NYSE:TTE) stock from a Neutral to an Overweight rating and increased the target price from $57.72 to $60.66. The target price reflects a potential upside of over 30% from the closing price as of September 30. Along with capital appreciation potential, TotalEnergies SE (NYSE:TTE) stock also offers an annual forward dividend yield of 6.13%. Malek added TotalEnergies SE (NYSE:TTE) stock to the “Positive Catalyst Watch” list. Analysts anticipate an energy shortfall of 20% during this decade due to an investment shortfall of $1.3 trillion. A second-degree impact on supply is expected as economic uncertainty increases.
On September 28, TotalEnergies SE (NYSE:TTE) shared that the company’s underlying cash flow is projected to increase by $4 billion in the following five years. TotalEnergies SE (NYSE:TTE) also plans to continue its $7 billion share buyback program along with the distribution of a special interim dividend of $1 per share at the end of 2022.
Overall, 20 hedge funds held a stake in TotalEnergies SE (NYSE:TTE) as of Q2 2022.
6. Unilever PLC (NYSE:UL)
Number of Hedge Fund Holders: 21
Unilever PLC (NYSE:UL) is a London, UK-based fast-moving consumer goods company with a diversified portfolio of over 400 brands. The company, founded in 1883, employs 148,000 people across the world.
On September 26, James Targett at Berenberg upgraded Unilever PLC (NYSE:UL) stock from a Hold to a Buy rating and increased the target price from $44.27 to $53.12. The target price is 18.8% higher than the closing price as of September 30. The analyst thinks that the company is in a position to experience organic growth at the upper end of the 3% to 5% guidance. Furthermore, Targett is expecting a significant recovery in Unilever PLC’s (NYSE:UL) margin during FY23 because of actions taken to control costs and better pricing power. Experts think that Unilever PLC (NYSE:UL) stock is trading at a 15% discount against its peers, making it one of the best European stocks to buy now.
Here’s what Mayar Capital said about Unilever PLC (NYSE:UL) in its Q2 2022 investor letter:
“In 1895 the Lever brothers created a new brand of hand soap. Inspired by the growing demand for hygiene products, the Lifebuoy brand of soaps was launched to ‘make health infectious’. 128 years later the Lifebuoy brand continues as a leading soap brand – albeit without the coal tar-derived ingredients list. In fact, the market research firm Kantar ranked Lifebuoy as the global #3 most chosen FMCG brand in 2020, just below Coca-Cola (KO) and Colgate (CL) – an astonishing fact given the age of the brand. While the brand is largely absent from shelves here in the UK, it is a juggernaut in Asian markets, and is the #1 brand in India.
There are two observations about the Lifebuoy story which tell us a lot about Unilever PLC (NYSE:UL), which is currently our largest holding in the Fund.
The first is the enduring power of brands in the consumer goods market. According to Kantar’s list of most chosen brands, the top 20 global marques have an average age of 116 years, with over half being founded in the 19th century. Fashions come and go, but there is something special about low-cost consumable goods that advantages strong, time-worn brand names…” (Click here to view full text)
Besides Unilever PLC (NYSE:UL), companies like ASML Holding N.V. (NASDAQ:ASML), Shell plc (NYSE:SHEL), and BP p.l.c. (NYSE:BP) are also on our list of the 10 best European stocks to buy now.
5. BP p.l.c. (NYSE:BP)
Number of Hedge Fund Holders: 27
BP p.l.c. (NYSE:BP) is a UK-based energy giant with a rich history of over 110 years.
BP p.l.c. (NYSE:BP) is working on achieving net zero greenhouse emission levels by 2050. The company intends to increase investment in low-carbon technology by ten times to $5 billion per year. Furthermore, BP p.l.c. (NYSE:BP) has decided to cease exploration in new countries and reduce crude oil and natural gas production by two-fifth in the next decade.
BP p.l.c. (NYSE:BP) has also undertaken serious initiatives related to EV charging in countries like China, Germany, and the UK. On September 12, Ryan Todd at Piper Sandler increased the target price for BP p.l.c. (NYSE:BP) from $44 to $47 and maintained an Overweight rating on the stock.
BP p.l.c. (NYSE:BP) recorded surplus cash flow of $6.6 billion in Q2 2022. The company intends to utilize $3.5 billion for share buybacks. Analysts believe that BP p.l.c.’s (NYSE:BP) PE ratio of 4.2x reflects that the company is trading at a discount to its fair value. The stock offers an annual forward dividend yield of 4.67% as of September 30. BP p.l.c.’s (NYSE:BP) strong fundamentals merit its inclusion amongst the best European stocks.
4. Novo Nordisk A/S (NYSE:NVO)
Number of Hedge Fund Holders: 32
Novo Nordisk A/S (NYSE:NVO) is a Denmark-based pharmaceutical company with a leadership position in the insulin market.
The company is responsible for producing 50% of the insulin in the world, fulfilling the need of more than 34 million people worldwide. Novo Nordisk A/S (NYSE:NVO) has already produced more than 600 million insulin pens as of 2022. In a research note issued to investors on September 28, Martial Descoutures at Oddo BHF upgraded Novo Nordisk A/S (NYSE:NVO) stock from a Neutral to an Outperform rating and maintained a target price of $119.53.
Novo Nordisk A/S (NYSE:NVO) is considered amongst the best European stocks as the company is not only focused on treating diabetes through its insulin offerings but is also diversifying in the growing obesity care segment. It is an emerging and growing trend that is receiving a lot of hype in the pharma world. Novo Nordisk A/S (NYSE:NVO) has been able to increase its earnings by 16.7% every year since going public and has outperformed its competitors in terms of profit margins in 2022.
Here’s what Baron Funds said about Novo Nordisk A/S (NYSE:NVO) in its Q1 2022 investor letter:
“We added to our position in Novo Nordisk A/S, a leading global biopharmaceutical company headquartered in Denmark that specializes in treatments for diabetes, obesity, and other chronic diseases. We wrote about Novo Nordisk in last quarter’s letter. We continue to believe Novo Nordisk’s diabetes and anti-obesity franchise will drive attractive revenue and earnings growth for many years to come. We think both Novo Nordisk and competitor Eli Lilly and Company(which we also own in the Fund) can be successful in these large markets.”
3. Shell plc (NYSE:SHEL)
Number of Hedge Fund Holders: 39
Shell plc (NYSE:SHEL) is a London, UK-based diversified energy company that has a presence in over 70 countries and a headcount of over 80,000 employees. The company is at the third position on our list of the ten best European stocks to buy now.
Like other all-energy majors, Shell plc (NYSE:SHEL) is aggressively working towards becoming a net-zero greenhouse emissions company by 2050. Experts think that Shell plc (NYSE:SHEL) has a solid balance sheet with a manageable amount of debt. The company is heavily focused on green energy as it operates 90,000 charging points on its retail sites for electric vehicles. Shell plc (NYSE:SHEL) intends to establish 500,000 charging points by 2025. The company is also working on building the biggest hydrogen plant in Europe that will be able to produce 60 tons of renewable hydrogen per day.
Shell plc (NYSE:SHEL) offers an annual forward dividend yield of 3.82%, translating into a payout ratio of 20.7% as of September 30. The stock is up over 35% YTD, in comparison to the S&P 500’s loss of 22.51% during the same period.
Third Point Management shared its bullish outlook on Shell plc (NYSE:SHEL) in its Q1 2022 investor letter. Here’s what the firm said:
“We have continued to add to our position in Shell, as it trades at the same deeply discounted multiple today that it did last year due to a move up in commodity prices. We are engaged in discussions with management, board members, and other shareholders, as well as informal talks with financial advisors. We have discussed various alternatives with the aim of both increasing shareholder value and allowing Shell to effectively manage the energy transition. We have reiterated our view that Shell’s portfolio of disparate businesses ranging from deep water oil to wind farms to gas stations to chemical plants is confusing and unmanageable. Most investors we have discussed this with agree that the company would be more successful over the long term with a different corporate structure. Discussions among the parties have been constructive and will be ongoing since stakeholders clearly see these corporate changes as instrumental, particularly if Shell wishes to become a leader in the energy transition rather than be left behind as a tarnished legacy brand.
Beyond our discussions around corporate structure, there have been two important developments since our last update. First, Shell announced a plan to redomicile its headquarters to the UK and create a single shareholder class. This move allows greater flexibility to modify its portfolio (either through asset sales or spin-offs) and allows for a more efficient return of capital, specifically via share repurchases. Second, fundamental and geopolitical events have highlighted the strategic importance of reliable energy supplies, especially in Europe. Shell’s LNG business, the largest in the world outside of Qatar, will play a critical role in ensuring energy security for Europe. In our view, the value of this business has increased dramatically since our original investment.
While Shell continues to trade at a large discount to its intrinsic value, with proper management we believe the company can simultaneously deliver shareholder returns, reliable energy and decarbonization of the global economy. We look forward to continued engagement with management and other shareholders and to more strategic clarity from the Company.”
2. ASML Holding N.V. (NASDAQ:ASML)
Number of Hedge Fund Holders: 47
ASML Holding N.V. (NASDAQ:ASML) is a Netherlands-based semiconductor company founded in 1984. The company is a maker of lithography systems for manufacturing semiconductor chips.
On August 31, Francois-Xavier Bouvignies at UBS upgraded ASML Holding N.V. (NASDAQ:ASML) stock from a Neutral to a Buy rating and increased the target price from $615.71 to $635.26. The target price provides a potential upside of over 50% from the stock price as of September 30. The analyst believes that ASML Holding N.V. (NASDAQ:ASML) stock is one of the best European stocks to invest in during the current uncertain macroeconomic environment. Bouvignies thinks ASML Holding N.V. (NASDAQ:ASML) stock offers limited downside risk, given the company’s strong pricing power over its customers and significant market presence.
ASML Holding N.V. (NASDAQ:ASML) has a monopoly position in the semiconductor industry because of its specialty in producing cutting-edge lithography systems. Experts believe the company has robust intangible assets due to high investment in research and development (R&D). Over the last decade, 17.5% of ASML Holding N.V.’s (NASDAQ:ASML) revenue was invested in R&D, amounting to $14.2 billion.
Here’s what Baron Funds said about ASML Holding N.V. (NASDAQ:ASML) in its Q2 2022 investor letter:
“ASML Holding N.V. designs and manufactures semiconductor production equipment. It specializes in photolithography equipment, where light sources are used to photo-reactively create patterns on wafers that become printed circuits. ASML is the dominant leader across all types of lithography but, most importantly, is the only company selling equipment for extreme ultra-violet (EUV) lithography, the latest generation technology.
Indeed, because of the stalling out of Moore’s Law, advanced lithography of larger and multi-patterned silicon chips has been critical for leading-edge chip manufacturing and continued improvement in semiconductor chip performance over time. The company is well positioned to continue growing above industry rates as it rapidly adds capacity across its entire business to meet rising industry demand, especially from leading-edge customers continuing to invest to stay ahead of their competitors and drive chip performance forward.
Additionally, the introduction of high-NA EUV technology in the middle of the decade will add another leg to the growth opportunity.”
As of Q2 2022, ASML Holding N.V. (NASDAQ:ASML) was held by 47 hedge funds.
1. Linde plc (NYSE:LIN)
Number of Hedge Fund Holders: 48
Linde plc (NYSE:LIN) is a Dublin, Ireland-based engineering and industrial gas company. It is the biggest industrial gas company in the world in terms of revenue and market share.
Geoff Haire at UBS gave Linde plc (NYSE:LIN) stock a target price of $320, along with a Buy rating on September 12. The analyst is confident that the company will face macroeconomic headwinds strongly and deliver EBIT growth to its investors in the coming quarters. Some experts consider the nature of Linde plc’s (NYSE:LIN) business as defensive. Linde plc (NYSE:LIN) is expected to weather the economic uncertainty due to its long-term contracts and strong margins. Furthermore, the EU has also shown support for entities manufacturing hydrogen and other important gases.
Analysts think Linde plc (NYSE:LIN) is supported by a high-quality order backlog and a strong internal rate of return. Linde plc (NYSE:LIN) offers an annual payout of $4.68 as of September 30, translating into a forward dividend yield of 1.65%.
ClearBridge Investments shared its stance on Linde plc (NYSE:LIN) in its Q2 2022 investor letter. Here’s what the firm said:
“The replacement of demand for Russian gas with green hydrogen positions Linde (NYSE:LIN) well. Green hydrogen, made by using renewable energy to split water into its basic elements, hydrogen and oxygen, and subsequently cleanly burn the hydrogen as fuel, is seen as key to lowering emissions in hard-to-decarbonize industries such as steel and cement, as well as transport. In 2021 Linde announced a long-term agreement to provide European semiconductor maker Infineon (OTCQX:IFNNY) with onsite production and storage of green hydrogen for the company’s site in Villach, Austria. Securing a clean, domestic source of energy for semiconductor manufacturing appears strategic today amid heightened concerns of reliable supply from Taiwan.”
Of the 895 hedge funds in Insider Monkey’s database as of Q2 2022, Linde plc (NYSE:LIN) was held by 48 funds.
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Disclose. None. 10 Best European Stocks to Buy Now is originally published on Insider Monkey.
