Goldman Sachs sees limited upside in European stocks

Investing.com -- Goldman Sachs strategists expect “lacklustre upside” in 2025 for European stocks, projecting a modest 4% price increase and a 7% total return, down from 10% last year.

The team's outlook is based on a subdued macroeconomic forecast, anticipating a slowdown in GDP growth for 2025, which is likely to result in limited growth in corporate revenues and profits.

Furthermore, with stock valuations already aligned with historical levels, strategists “see minimal re-rating potential at an index level,” Goldman said in a Friday note.

Nevertheless, the team foresees an environment conducive to stock picking due to the potential for low correlation and high dispersion among stocks.

“Against this backdrop, we see potential for shareholder returns to play a large role in performance differentiation, and highlight stocks that screen well on an income lens and on buybacks,” the note states.

Goldman Sachs points out that despite a recent uptick in global bond yields, several European firms still provide dividend yields that surpass local government bond yields, coupled with dividend per share (DPS) growth of more than 5% from fiscal year 2024 to 2026.

Companies such as M&G Plc (LON:MNG ), BNP Paribas SA (EPA:BNPP ), Stellantis (NYSE:STLA ), and ENI (BIT:ENI ) were noted for their high dividend yield and growth prospects.

Furthermore, Goldman Sachs sees an opportunity for strategic share repurchases, especially in market segments where valuations are low.

“We see a tactical opportunity in companies “buying low” where buybacks can be accretive to EPS growth,” strategists said.

They identified companies like ISS A/S (CSE:ISS ), Shell (LON:SHEL ), Eurazeo (EPA:EURA ), and Ryanair Holdings PLC ADR (NASDAQ:RYAAY ), where a reduction in share count of more than 5% is anticipated over the 2024-2026 period.

Goldman Sachs also highlighted additional screens that could present opportunities in European equities.

These included out-of-consensus buy-rated stocks like Geberit (SIX:GEBN ) and Fresenius Medical Care (NYSE:FMS ), and sell-rated names such as Akzo Nobel NV (AS:AKZO )l and Nokia Corp ADR (NYSE:NOK ).

The firm also noted valuation opportunities in stocks trading below historical averages with earnings upside, including E.ON SE (ETR:EONGn ) and Deutsche Bank (ETR:DBKGn ), alongside high-growth picks like Rolls-Royce (OTC:RYCEY ) Holdings PLC (LON:RR ) and Lonza Group AG (SIX:LONN ).

Additionally, stocks like SAP SE ADR (NYSE:SAP ), Nordex (ETR:NDXG ), and Logitech (NASDAQ:LOGI ) stood out for delivering high returns and free cash flow (FCF) improvements.

Source: Investing.com