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Since Barron’s last screened for European stocks whose earnings prospects may not be fully priced in, the pan-European
has climbed to record highs despite much of the continent battling a third wave of Covid-19.
The index is now up more than 10% year-to-date but there are signs that more gains could be ahead, with Europe’s economic recovery yet to really get going. Initially slow vaccination rollouts in many European countries are starting to gather pace, and the U.K. notably reopened large parts of the economy earlier this month.
Barclays’ European equity strategists devised a stock screen designed to find companies whose share price was lagging behind its earnings estimates. Their method screened for Stoxx 600 companies currently trading at least 5% below their levels at the end of 2019 and whose 2021 earnings per share, or EPS, estimates were above their pre-Covid 2019 EPS.
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“On this basis, consensus numbers suggest that the better earnings growth prospects of these stocks are not fully priced in, implying potentially attractive risk-reward ,” head of European equity strategy
Emmanuel Cau
said.
Following a similar approach, Barron’s screened the Stoxx 600 for stocks trading more than 10% below their levels at the end of 2019 and filtered for companies that trade for no more than 20 times forward earnings estimates. The screen used FactSet consensus estimates instead of Barclays consensus estimates. The companies must also have a market capitalization above $10 billion.
An earlier version of this screen at the end of February contained 37 European companies whose shares were more than 10% lower than their end-2019 levels.
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Since then, the index has jumped 6.8%, hitting record highs earlier this month. As a result the number of stocks in the screen dropped to 25 at the end of March and remains at 25 this time, with many departures down to rising share prices. However, there are still a number of stocks out there sitting below their 2019 levels but set to beat 2019 earnings this year—implying room for them to grow in the months ahead.
Data as of April 27
Source: FactSet
Four stocks have exited the screen: French telecoms company
insurance firm
Axa,
French defense group
and Swiss-based Coke bottler
Axa, Coca-Cola HBC and Thales have all seen their share prices rise in the past month, leading to their exit. Orange stock still remains 21% lower than it was at the end of 2019, but the telecoms giant’s 2021 EPS estimate has fallen in recent weeks, and is now expected to be flat compared to 2019.
Four companies have entered the screen: French insurer
Swedish telecoms company
Swiss bank
and Norwegian oil-and-gas producer
Shares in both CNP and Telia have slipped over the past month to more than 10% lower than their end-2019 levels. Credit Suisse features because analysts now forecast the bank’s 2021 EPS to beat that of 2019, while Aker BP’s market value has risen above $10 billion for its first inclusion in the screen.
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