- Bank of America says European stocks should start to outperform in mid-2023.
- US stocks have long outperformed international, leaving some experts bullish on global stocks today.
- Strategist Jill Carey Hall and her team named 20 stocks as their favorite European small-caps.
If US stocks are stuck in a complicated market — sustained but slowing growth and inflation, spiking interest rates — how to describe what’s happening in Europe?
Experts differ on whether the US will experience a recession in 2023 or 2024, but there is more agreement that Europe is headed for one. The war in Ukraine is a much closer concern, and surges in commodity prices have been even more severe in Europe than they have been in the US.
And yet it’s not hard to find people who are relatively bullish on stocks in Europe, and outside the US generally. Even those who have broader concerns about European stocks say there are plenty of opportunities there.
“European small cap stocks are more cyclical and more domestic than large caps, given their high weighting in sectors such as capital goods, real estate and transport,” wrote Jill Carey Hall, Bank of America’s head of US small- and mid-cap strategy, in a recent note to clients. “Small caps typically outperform when Euro area growth accelerates (i.e. Euro area PMIs rise) and underperform when Euro area growth slows.”
Carey Hall and her team say European stocks overall will lag global stocks by about 15 percentage points through the end of this year because of that slowdown, so she’s cautious about smaller companies relative to larger ones. She says many of those risks are priced in, but the stocks still have some vulnerability right now.
“We expect small versus large caps to trough only once the macro cycle troughs, which we think will be around the middle of the year, once the drag from monetary tightening wears off and the full China reopening kicks in,” she wrote.
The following 20 stocks are Bank of America’s top picks among smaller European equities, which means BofA thinks they might be some of the largest beneficiaries when conditions start to turn more favorable later this year. The stocks are ranked from lowest to highest based on how much upside for the shares is reflected in its price targets.
