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Europe is set for a “weak stagnation” that will dampen the market, but several sectors and stocks stand out to UBS as good plays this year as growth stabilizes and inflation slows. The Swiss investment bank expects Europe’s growth to stabilize at 0.6% this year, a conservative estimate compared with the 1.2% growth rate penciled by the International Monetary Fund. “Our macro outlook for Europe is for a weak stagnation that takes European equities modestly lower but delivers another year of actionable divergences between sectors and stocks,” UBS analysts led by Gerry Fowler wrote in a Jan. 19 note. They estimate that the benchmark Stoxx Europe 600 will trade between 420 and 520 this year, with retail, banks, real estate, mining, software, semis and media being among their “favored sectors.” For reference, the index is trading at around 472.86. “In 2024, we think the factors that will perform are domestic (smaller companies), quality and growth,” the analysts wrote, adding that slower growth and lower yields should reduce the headwinds for the valuations of growth stocks. ‘Well-positioned, domestic, quality, growth companies’ “Well-positioned, domestic, quality, growth companies” that UBS has given buy ratings include Spanish clothing company Industria de Diseno Textil, British bakery chain Greggs and online real estate platform Rightmove as well as French construction player Vinci . “We like domestic exposures because European growth has already slowed but is forecast to stabilize in contrast to the U.S. and China where growth is expected to slow,” the bank’s analysts said in explaining why they like the companies. The investment bank also named its top buy-rated names with “well-tested tactical signals for stocks based on alpha models covering the macro regime, earnings, valuation and sentiment.” Here are 10 of them. Software plays 2023 was a strong year for software, and UBS is bullish about the sector’s 2024 outlook, citing a Gartner forecast that IT spending will grow by 8% this year, up from 3.5% in 2023. It has a buy rating on ASML Holdings , SAP , Infineon Holdings and Capgemini , giving them potential returns of 22%, 17%, 40% and 10%, respectively. — CNBC’s Michael Bloom contributed to this report.
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