European stocks in 2026: what the largest investment banks are betting on

European stocks are entering 2026 with continued growth potential after their strongest year since 2021, according to Bloomberg, citing opinions from major investment banks. Analysts agree that banks, as well as companies involved in defense, renewable energy, and electrification, will remain key market drivers. Additional support may come from stimulus measures in Germany and corporate earnings growth, including against the backdrop of the US economic recovery. European stocks are still trading at a discount to US stocks, which makes the region attractive, the agency says.

Who are analysts betting on as favorites in 2026?

The European stock market is likely to maintain its upward momentum in 2026 thanks to the "growing recovery of the US economy," according to Morgan Stanley strategists led by Marina Zavolok. The United States accounts for about 23% of the total weighted revenue of European companies, so they may benefit further from US business profits rising above market expectations, as well as from a favorable tax and regulatory environment, the bank suggests.

The banking sector tops Morgan Stanley's list of priorities, followed by tobacco companies and defense contractors. Among individual stocks, the favorites include Spanish banking giant Banco Santander, the UK's largest retail banking group Lloyds Banking Group, German energy and engineering conglomerate Siemens Energy, British energy and utilities company Centrica, international medical and pharmaceutical group Fresenius, Dutch banking group ING Groep with its strong digital business, global technology investment holding Prosus, Germany's largest defense company Rheinmetall, French energy group ENGIE, one of France's leading banks Societe Generale, and European aircraft manufacturing leader Airbus.

For the first time in three years, UBS Group forecasts a return to profit growth in Europe in 2026. According to strategist Jerry Fowler, "the most attractive opportunities are forming around the renewal of Europe and structural investments." He highlights the renewable energy sector, which is supported by more than €2 trillion in investments in energy grids and clean energy. Companies involved in electrification should also benefit from favorable regulation and sustained infrastructure spending. Key names in this segment are EDP and Solaria Energia y Medio Ambiente.

"Domestic policy is shaping new global champions in renewable energy, electrification, defense, and infrastructure," Fowler notes, highlighting Acciona, Rexel, and Prysmian as companies capable of turning local competitive advantages into international growth.

The banking sector, in turn, remains in a strong position thanks to high capital levels, accelerating lending growth, and attractive market valuations.

Barclays strategists, led by Emmanuel Caux, believe that artificial intelligence as a whole could once again "determine the fate of stock markets" in 2026. At the same time, European stocks could receive additional support from Germany's stimulus policy and expected earnings per share growth of around 8%. According to the bank's estimates, this growth will be driven by operating leverage (when revenue growth leads to faster profit growth), last year's low base, and easing pressure from currency factors.

Barclays is betting on the banking sector and cyclical stocks that are sensitive to economic growth. Key investment ideas include British outsourcing and business services company Capita, French global leader in outdoor advertising JCDecaux, Europe's largest tourism group TUI, international online betting operator Flutter Entertainment, British alternative investment manager ICG, and operator of key financial infrastructure for capital markets London Stock Exchange Group.

At the same time, the bank maintains a cautious outlook on the UK market. Analysts expect the FTSE 100 index to lag behind due to its defensive structure, which is less attractive against the backdrop of the cyclical recovery of the European economy.

According to Barclays, the fragile political and fiscal situation in the country remains an additional factor of uncertainty.

European stocks continue to trade at a significant discount to their US counterparts, according to analysts at Jefferies. The relative attractiveness of valuations could increase if the market focus shifts toward companies benefiting from the monetization of artificial intelligence, which could extend the rally in global stock markets.

Supportive global fiscal and monetary policies continue to be a positive factor for risk assets, and the arguments in favor of increasing the share of European equities in portfolios are now more compelling than ever, according to Jefferies.

Cyclical sectors retain their potential for outperformance. Among the stocks highlighted by the bank are Swiss sanitaryware and building materials manufacturer Geberit, German building materials and cement producer Heidelberg Materials, Swedish construction and infrastructure group Skanska, major French universal bank Societe Generale, Swedish industrial group and truck manufacturer Volvo, and British home improvement retailer Wickes Group.

In addition, companies' ongoing efforts to improve efficiency by cutting costs and selling non-core assets are boosting the appeal of a number of stocks. Among the favorites are British insurance group Admiral Group, specialty chemicals manufacturer Elementis, international commodities trader and mining group Glencore, one of the world's largest brewers Heineken, global pest control and hygiene services provider Rentokil Initial, and international automaker Stellantis.

Deutsche Bank analysts maintain a "constructive" view on US and European equities, while tactically favoring Europe. The team notes that it is slightly more positive on Germany than on the region as a whole. At the individual stock level, priority is given to companies that are best positioned to benefit from the Berlin government's stimulus measures.

Analysts led by Tim Rokoss expect their "TOP10 Germany" basket to deliver double-digit growth potential. It includes European tourism group TUI, Austrian steel and industrial solutions manufacturer Voestalpine, major German building materials manufacturer Heidelberg Materials, crane and lifting equipment manufacturer Palfinger, German infrastructure and railway engineering company Vossloh, warehouse logistics and industrial automation solutions provider KION Group, Europe's largest car manufacturer Volkswagen, German energy engineering group Siemens Energy, IT solutions and digital services provider Bechtle, and one of Germany's largest banks, Commerzbank.

Panmure Liberum ranks construction companies focused on infrastructure projects and the affordable housing segment in the UK among the British stocks that analysts are most confident about for the coming year. Analysts led by Joe Brent note positive market signals, including an increase in the number of contracts and the continued expansion of the construction business activity index. Key investment ideas include the British infrastructure and engineering group Costain Group, the international geotechnical and construction company Keller Group, and one of the largest contractors in the infrastructure and housing construction sector in the UK, Kier Group.

The bank also has a positive outlook on the UK property market. "As we enter 2026, publicly traded real estate looks better prepared than at any point since 2021," note analysts led by Tim Lecky. Interest rates have stabilized, real yields are likely to decline, and last year's rental income growth is beginning to translate into a noticeable acceleration in profits. Among the favorites are British commercial real estate investment trust NewRiver REIT, London's largest office and commercial property owner Land Securities, and one of the UK's leading commercial property developers and operators, British Land.

Three British investment trusts that analysts believe could provide useful portfolio diversification in 2026 are the globally diversified Alliance Witan investment trust, JPMorgan Emerging Markets Growth & Income, a fund focused on emerging market equities with an emphasis on income, and Personal Assets Trust, a conservative multi-asset trust with an emphasis on capital preservation, according to Hargreaves Lansdown senior investment analyst Hal Cook.

In the face of continuing uncertainty, he notes, it makes sense for investors to spread their investments across different asset classes, regions, sectors, and investment styles to reduce the risk that a single adverse event could upset the balance of the entire portfolio.

This article was AI-translated and verified by a human editor