5 European Stocks to Sell Before Recession Starts

4. SAP SE (NYSE:SAP)

Number of Hedge Fund Holders: 19

SAP SE (NYSE:SAP) is a German software company engaged in the development of enterprise software to fulfill business operations and customer relations needs. The company is considered the biggest enterprise resource planning (ERP) software execution vendor globally.

On July 22, Raimo Lenschow at Barclays gave SAP SE (NYSE:SAP) stock an Equal Weight rating with a target price of $106. The analyst highlighted that the company is expected to face headwinds due to the Russia-Ukraine conflict. Lenschow also thinks that SAP SE (NYSE:SAP) hasn’t given enough clarity on the appointment of a new CFO. Furthermore, it is difficult to be constructive on SAP SE (NYSE:SAP) stock due to cost overruns linked to the company’s cloud infrastructure.

In Q2 2022, SAP SE (NYSE:SAP) missed the EBIT estimate and lowered the EBIT guidance for the year. SAP SE (NYSE:SAP) is facing a lack of short-term catalysts.

Here’s what Polen Capital said about SAP SE (NYSE:SAP) in its Q1 2022 investor letter:

“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.”