In this article, we discuss 5 European stocks to sell before the recession starts. If you want to read our discussion on the economic situation in Europe, go directly to 10 European Stocks to Sell Before Recession Starts.
5. Deliveroo plc (OTC:DROOF)
Deliveroo plc (OTC:DROOF) is a London, UK-based online food delivery company. The company claims to be working with 140,000 restaurants across the UK as of 2022.
On July 18, Deliveroo plc (OTC:DROOF) lowered its 2022 revenue guidance as consumers are cutting down on discretionary expenditure with inflation hitting a four-decade high. The company cut its growth in gross transaction value (GTV) guidance to 4% – 12% as compared to prior guidance of 15% – 25%. During Q2 2022, the GTV dropped to 2% only as opposed to 12% during Q1 2022. The consumer confidence level is at an all-time low as wages are unable to match the higher cost of living.
Deliveroo plc (OTC:DROOF) anticipates the company’s EBITDA to record a decline of 1.5% in 2022. The company’s full year’s guidance translates into a loss of $140 million, according to the experts at Jefferies.
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.”
2. Just Eat Takeaway.com N.V. (OTC:JTKWY)
Just Eat Takeaway.com N.V. (OTC:JTKWY) is an Amsterdam, Netherlands-based online food ordering and delivery solution provider. The entity was established following a merger of Amsterdam-based Takeway.com and London, UK-based Just Eat in 2020.
The market value of Just Eat Takeaway.com N.V. (OTC:JTKWY) has taken a hit with a sharp decline in the valuations of tech stocks. Just Eat Takeaway.com N.V. (OTC:JTKWY) has lowered the value of GrubHub, its US subsidiary, by $3 billion, citing intense competition and restricted budgets.
On August 4, Andrew Ross at Barclays downgraded Just Eat Takeaway.com N.V. (OTC:JTKWY) stock from an Overweight to an Equal Weight rating. The analyst highlighted that the cash burn by the company is greater than expected. Ross also added that Just Eat Takeaway.com N.V. (OTC:JTKWY) is heading towards a position where it would have to sell its assets from a position of weakness to sustain the business operations as the pressure on the balance sheet is continuously growing.
2. Uniper SE (OTC:UNPRF)
Uniper SE (OTC:UNPRF) is a German energy company.
Uniper SE (OTC:UNPRF) has found itself in the middle of a severe liquidity crunch following Russia’s decision to curtail deliveries of natural gas. The move follows the imposition of European sanctions on Russia following the start of its conflict with Ukraine. Uniper SE’s (OTC:UNPRF) was heavily reliant on cheap Russian natural gas which has exposed the company to supply cuts.
On July 8, Uniper SE (OTC:UNPRF) requested a government bailout which is expected to be valued at €10 billion. Earlier, the company had already applied for the extension of a €2 billion credit line from German lender, Kfw Group. To avoid purchasing fuel at higher spot prices, Uniper SE (OTC:UNPRF) has started using the natural gas it had stored for the winters. Uniper SE (OTC:UNPRF) can be seen as lacking the strength to sustain its operations in the long run without solid government funding.
1. Ambu A/S (OTC:AMBBY)
Ambu A/S (OTC:AMBBY) is a Ballerup, Denmark-based developer, producer, and seller of diagnostic and life-supporting equipment for hospitals and private clinics, along with single-use endoscopy solutions.
Ambu A/S (OTC:AMBBY) has the distinction of being the most shorted stock in Europe and has lost over 70% of its value in the last year. Hedge funds have generated $1.25 billion by going short on Ambu A/S (OTC:AMBBY) stock as of May 2022. The company has been struggling as the return toward elective surgeries following the COVID-19 pandemic has been slower than anticipated, and this has caused Ambu A/S (OTC:AMBBY) to reduce its guidance four times in less than 12 months. Ambu A/S (OTC:AMBBY) is also facing severe supply-chain challenges. Hedge funds are expected to increase their short interest in the stock.
You can also take a peek at 10 Healthcare Stocks to Buy Now According to Billionaire Larry Robbins and 10 Stocks That Billionaire Rob Citrone Is Selling.
