European market trends
Jefferies made a great analysis and showed us the top 13 companies to invest in. There is no matter what is your investment capital. Before this let’s look what are the market trends in Europe.
Germany’s leading Dax index is already up almost 9% this year. However, the Dax index of smaller market capitalization companies is doing even better: it is now up 11% after falling 27% in the previous year. Significantly more than the Dax, which lost just 12%.
This seems to confirm a historical trend: The shares of smaller companies, the so-called small caps are more volatile and sensitive to economic cycles. As a result, they depreciate faster and more deeply in tough times for the stock market. Often the recover earlier and more strongly when the market recovers, German economic daily Handelsblatt wrote in an analysis.
Because of this, analysts at the US bank Jefferies believe that “2023 could be a rebound year” for small-cap companies. In a study, they identified five investment areas where they see potential this year, and of these, in turn, separated their 13 top proposals.
1. Renewable energy sources: Aalberts, Meyer Burger, Nordex.
Many governments are trying to reduce their dependence on fossil fuels. Jefferies experts expect “shares of companies with a focus on sustainable energy solutions to benefit from this through direct investment, tax incentive schemes or accelerated approval processes”.
Therefore, in the face of the Dutch conglomerate Aalberts, they see opportunities to impose themselves in end markets such as green buildings, sustainable transport, and semiconductor efficiency. They also see the potential for growth in solar technology manufacturer Meyer Burger. Jefferies described the Swiss company as a “leading European solar module producer” that is sold off until the third quarter of 2023 due to rising demand.
Nordex, on the other hand, is now trading above its price target. Jefferies sees the German wind power company as attractive as it is “active in around 90% of relevant onshore wind turbine markets (excluding China)”. This geographic diversification allows it to focus on gaining market share in the main markets.
2. Quality companies according to Jefferies: D’leteren, Bechtle, CTS Eventim, and Mips.
A eurozone recession is still not out of the question, inflation remains well above the ECB’s target and funding costs have risen due to higher interest rates. “We believe that high-quality companies, characterized primarily by earnings consistency, good pricing power, and strong reports, will remain in focus in 2023,” the Jefferies report said.
In this environment, analysts at the US bank are betting on Belgian car dealer D’leteren. And that’s because it offers access to Belron, the UK’s market leader in automotive glass repair, replacement, and recalibration. Jefferies believes that D’leteren is highly undervalued.
At German IT systems company Bechtle Jefferies expects a slowdown in the pace of orders. “Nevertheless, robust and growing engagement with public sector clients (around 35%) continues to support revenue, particularly in periods of economic weakness.”
The ticketing platform CTS Eventim is another company among the top offers. Due to sluggish demand following the coronavirus pandemic, sales in the third quarter rose by more than 100% compared to pre-crisis levels. “Our tracking website suggests the strong performance will continue,” Jefferies wrote.
The fourth offering in this area is from Mips, a Swedish developer of helmet technology for riding, cycling, and skiing. Against the background of the growing importance of helmets in road traffic and the trend toward the development of electric bicycles, experts see opportunities here as well.
3. Defensive stocks: Vimian and IMCD
In this uncertain economic environment, it is generally profitable to look for companies whose business model does not depend on the economic cycle (so-called defensive stocks – stable large companies with a good foundation). Jefferies analysts see such in the face of the Swedish veterinary company Vimian: “We believe that positive market trends, such as the increasing number of pets and the humanization of pets, will support future growth.”
Dutch chemicals distributor IMCD, on the other hand, could benefit from customers looking to stabilize their relationships with distributors. Big companies like IMCD are considered winners in this trend.
4. Supply Chain Recovery according to Jefferies: Nordex, Bechtle, AT&S
Global supply chains have been continuously disrupted in recent years. Jefferies now believes the situation will improve this year. Nordex, for example, has benefited from the easing of China’s coronavirus policy, which has improved the on-time delivery of projects. At Bechtle, China’s economic recovery is helping sales growth.
Jefferies also sees opportunities in AT&S, an Austrian semiconductor manufacturer specializing in the supply of parts for mobile devices, automotive, medical technology, and industrial solutions. Cyclical weakness in share prices is a good entry point for investors, according to the US bank.
5. Change in mood: Shop Apotheke, Do & Co., and Nagarro
In the current uncertain market environment, Jefferies is looking for companies that could change sentiment this year. Experts believe this is possible for Dutch online ordering and delivery pharmacy Shop Apotheke, which could benefit from the planned introduction of e-prescriptions in Germany.
The Austrian catering company Do & Co. is a potential beneficiary of the normalization of air traffic after the pandemic. Jefferies estimates the recovery of the airline catering business at around 70%. “A full recovery would mean sales of around 1.6 billion euros.”
German IT specialist Nagarro raised its forecast four times last year, increasing sales by almost two-thirds and improving profitability. However, poor market sentiment toward tech stocks has seen their share price drop by almost half. However, Jefferies experts believe that “sentiments will turn in favor of Nagarro”.
Please do not take this article as investment advice. Please, make a detailed analysis and research before putting your own money at risk by trading on the financial markets.
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