Goldman Sachs is betting on Europe. Where should investors look for above-market returns?

European equities may continue to grow: fiscal stimulus, expectations of rate cuts and improved macroeconomic forecasts are contributing to this. Goldman Sachs analysts analyzed current opportunities in the broad European market and named sectors that may allow investors to outperform the market.

The STOXX 600 Index, which includes large European companies, is up 8.5% since the start of 2025. Goldman Sachs Research forecast that the index could add about 4% over the next 12 months.

One of the reasons for the growth was the fact that European stocks in general remain cheaper than U.S. stocks, said Sharon Bell, senior strategist at Goldman Sachs Research Sharon Bell. That's especially true for companies that work for the domestic market - analysts are paying particular attention to them. According to Bell, such businesses are in a better position because they are less exposed to currency fluctuations: «They don't have as much dollar exposure, they've had a long period of weak results and are now trading at a deeper discount.»

According to the forecast of the bank's economists, real GDP growth in the eurozone by the end of 2025 will be only 0.9%. However, Bell notes that as early as 2026 and beyond, forecasts are becoming more optimistic. «Fiscal policy, defense policy and ultimately rate cuts by the European Central Bank contribute to slightly more meaningful growth in 2026 and 2027,» she says.

In turn the large STOXX 600 companies with a presence in the U.S. have grown their footprint significantly-the share of their assets located in the Americas has increased from 18% in 2013 to 30% in 2025, and the U.S. market now accounts for about a quarter of revenue. «That's big dollar exposure,» Bell says. - What does that mean for our strategy? We think it will lead to a slight shift towards diversification - and that could benefit the European assets.»

In March 2025, utility stocks in Europe rose 20% against the STOXX 600 index. This happened amid fears of recession and trade duties from the U.S., when investors began to look for protective assets, demand for which remains in any economic situation.

Alberto Gandolfi, head of utilities at Goldman Sachs Asset Management, believes the key driver of growth has been a reversal in electricity demand. He says consumption in 2025 is up 1% in Germany, 1.5% in Italy and about 4% in Spain.

«The transition to growth in electricity consumption is an event of tremendous importance, because this indicator has been declining for 15 years. It completely changes the industry's revenue outlook,» says Gandolfi.

His team studied how the utility sector has weathered past crises, from the dot-com crash to the pandemic. Typically, utility companies outperform the market by 10-30% during periods of market stress. «Typically, utility companies perform best when two events occur simultaneously: lower rates and a prolonged bear market. If these conditions persist, chances are the sector will continue to grow as strongly as it did in March and April,» he adds.

In April, developer stocks performed better than the market as a whole. Jonathan Covnator, head of European real estate, attributes this to a combination of the defensive nature of the sector, lower bond yields and low valuations prior to the introduction of «mirror» duties by the Trump administration.

The average price-to-earnings (P/E) ratio for European developer stocks remained below 14 at the time of the report, while the STOXX 600 index is around 15, (and the US S&P 500 is around 25). This means that investors are valuing these stocks cheaper than the market as a whole. According to Kovnator, this is due to the sector's protracted underperformance and suggests that the market is not yet pricing in the potential for recovery. He notes that current quotes do not yet reflect the sustained growth in rental rates that his team is forecasting. In addition, European real estate is not directly affected by duties as it is focused on the domestic market.

Among the segments that are showing resilience and growing interest, Kovnator singles out residential real estate in Germany: it is most sensitive to high interest rates and could benefit from monetary easing;

Shares of grocery stores, especially British ones, may also become attractive to investors, according to Richard Edwards, head of European consumer sector Richard Edwards. According to him, inflation, population growth and consumers' shift from restaurants to home-cooked meals make the UK market particularly attractive.  

The UK's four largest chains recorded a rise in grocery sales in April - thanks in part to the later Easter season, Edwards notes. According to Goldman Sachs, sales volumes were up 4.5% in March and April. Large chains are investing in loyalty programs and permanent low-price strategies - to retain customers despite price pressure from smaller players. Meanwhile, their profit margins have temporarily fallen, but Edwards expects a return to growth next year.

«These companies have enough tools to continue to provide good value for money to consumers. So I think this is more of a temporary bump in the road than a fundamental problem,» he says.