While attention has been captivated by the stellar gains of mega-cap U.S. growth stocks like Nvidia, Citi has turned its focus to European equities, identifying a group of stocks with similar fundamental traits but trading at more attractive valuations and offering potentially greater upside.
The pan-European Stoxx 600 index mirrored its American counterparts, closing at a record high last week, signifying a rally that is either intensifying or being led by a narrower group of stocks.
In a client note, Citi strategists introduced the "Super 7" group of European heavyweights, trailing behind the U.S. counterparts but boasting similar fundamental characteristics. These stocks, according to Citi, could benefit amidst the ongoing consolidation environment.
Citi's Super 7 comprises stocks exhibiting criteria akin to the superior performance of U.S. mega-caps, including high profit margins, robust earnings per share growth, and competitive advantages or economic moats.
The identified stocks include Novo Nordisk, ASML, LVMH, SAP, Schneider Electric, Richemont, and Ferrari. Notably, all these stocks are also listed in the United States.
Novo Nordisk, Europe's most valuable company and a developer of weight loss drugs, saw its shares surge by over 65% in the past 12 months. Similarly, ASML, a chip equipment manufacturer, witnessed an increase of nearly 50% during the same period.
Despite last year's rally, Citi notes that the Super 7 group has appreciated around 70% less than the Magnificent Seven since the beginning of 2023, indicating further upside potential.
Citi suggests that in continued tight market conditions, the Super 7 could continue to outperform, countering the notion of selling stocks based on market leadership. The bank also highlights the medium-term upward potential of cyclical stocks and broader market indices.
With the market dynamics evolving rapidly, investors are looking to diversify their portfolios while seeking opportunities in regions and sectors offering growth potential at reasonable valuations. As the European market gains traction, Citi's identification of the Super 7 stocks provides investors with valuable insights into potential investment avenues amidst the evolving market landscape.
