How Investors Can Profit from Europe’s Problems: 10 Stocks and the Polish Market

The economic situation in Europe is deteriorating, and the problems facing its energy sector are worsening. However, there are certain sectors and stocks in the market that are benefiting from this.

The price of Brent crude oil exceeded $109 last Thursday due to the escalating tensions between the U.S. and Iran, coupled with attacks by Yemeni Houthis on energy facilities in Saudi Arabia. This escalation is once again leading to a reduction in supplies from the region, which had been partially restored over the summer.

Gas prices in Europe are currently at the same level as in December 2022. Back then, however, prices were falling from record highs. But this year, it has already risen by more than 150% compared to the end of February, when the war in the Middle East began. European gas storage facilities are 67.6% full (the lowest level since 2009); usually at this time of year, reserves have already reached 83%.

Dutch TTF natural gas futures are trading at over €80 per MWh (about $1,000 per 1,000 cubic meters). The price is approaching the “stress zone”; exceeding the 100-euro-per-MWh mark will begin to undermine the economic situation, according to David Zhong, a quantitative analyst at Bloomberg.

Rising energy prices have accelerated inflation in the eurozone (3.3% in August). On September 10, the ECB raised its deposit rate by 0.25 percentage points to 2.5% for the second time this year. In a statement, the ECB acknowledged that inflation “will remain well above” the regulator’s 2% target for an extended period. It forecasts 3% this year, 2.5% in 2027, and 2.1% in 2028.

The ECB may raise rates again in October, Bloomberg reported, citing people familiar with the matter. Traders expect three rate hikes by the end of the year.

Energy companies and those benefiting from rising interest rates are clearly the winners in this situation, while industrial firms, on the other hand, may face difficulties, according to Bloomberg. But even in the latter case, the picture is not entirely clear-cut: for example, chemical companies—which would normally suffer from rising prices for fossil fuels—actually benefited from the halt in chemical shipments from the Middle East.

"It makes more sense to assess the impact on a sector-by-sector basis and for individual stocks within each sector," Karen Georges, an equity fund manager at the French firm Ecofi, told the news agency.

Gas producers and oil refiners are the direct beneficiaries. The profit margins of the latter have risen sharply as a result of the Middle East crisis: prices for petroleum products have risen much more sharply than those for crude oil.

Among them is Norway's Equinor —since the beginning of the year, its shares on the Oslo Stock Exchange have risen 75% in price; five analysts recommend holding the stock, while four have a "Underperform" or "Sell" rating.)

France's TotalEnergies has gained about 40% since the start of the year; seven out of 11 analysts recommend buying its stock, three more recommend holding it, and one recommends selling it.

Bloomberg also mentions the British company BP; its stock has risen by about a third since the start of the year, with 14 analysts recommending a “Buy,” 13 recommending a “Hold,” and only three recommending “Underperform” or “Sell.” Another British company is Shell. Since the start of the year, its stock has also risen in price by nearly 30%; it has 13 “Outperform” or “Buy” recommendations, 19 “Hold” recommendations, and one “Sell” recommendation.

At the same time, in relative terms, stock prices in the market have fallen significantly, Bloomberg notes. Corporate earnings grew much faster than stock prices.

At the beginning of the year, the price-to-earnings (P/E) ratio in the sector stood at around 11.5. In March, it jumped to nearly 15, as energy prices and stock prices had already begun to rise, while earnings had not yet followed suit. This was followed by a sharp rise in earnings forecasts and the release of second-quarter earnings reports: the P/E ratio fell below 10 and stood at 10.8 in early September.

The energy sector is followed by shares of other commodity companies—mining, metallurgical, wood processing, and others. The STOXX Europe 600 Basic Resources sector index has risen 25% since the beginning of the year.

The chemical sector index rose by 14%. Although they use oil and gas—whose prices have risen—as raw materials for certain products, European companies have benefited from the virtually instantaneous disappearance of their Middle Eastern competitors. The question is how quickly those competitors will be able to return. According to Sebastian Brey, a chemicals analyst at Berenberg Bank, investors “are still weighing the pros and cons” when assessing the sector’s outlook—temporary growth in chemical prices on the one hand, and a potential weakening of demand, rising borrowing costs, and higher energy costs on the other.

Although the outlook for the chemical industry in the second half of the year is favorable, Brey, for example, is skeptical about the prospect of increased profits in 2027 for companies such as BASF and Evonik Industries, when the impact of Iran is expected to wane.

The price of the first stock has risen by nearly 17% since the beginning of the year, but analysts’ assessments are mixed: of the 21 teams, nine have issued “Outperform” or “Buy” recommendations for BASF, seven have issued “Hold,” and five have “Underperform” or “Sell” ratings. The second company’s stock price has risen by nearly 34% since the start of the year, and the market consensus rating is “Hold.”

In the case of France’s Air Liquide, the largest company in the sector index (up 14% year-to-date), confidence is higher: 18 analysts have issued “Outperform” or “Buy” recommendations, while four have issued “Hold” recommendations.

There are also winners in the utility sector. This sector can be divided into three categories based on business model: winners, companies with neutral performance, and losers, says Karen Georges of Ecofi.

The stock price of Spain’s Endesa, for example, is rising (up 37% year-to-date), while those of Italy’s Italgas and Britain’s Centrica are falling. Spain has built a strong renewable energy sector, significantly reducing its dependence on natural gas (including in setting electricity prices), while Italy has not done so.

Electric vehicle manufacturers are also benefiting from the shift to green technologies.

Admittedly, this applies more to Chinese companies that are actively expanding in Europe, where it is difficult for local automakers to compete with them.

Meanwhile, shares of the Franco-Italian-American company Stellantis—which has drastically cut back on the development and production of electric vehicles—have been the worst performers on the European market. Since the beginning of the year, their price has more than halved.

Given the rise in fuel prices (gasoline costs more than $5 per gallon in the U.S., and the price of diesel has reached $6 for the first time), “having a powerful engine isn’t so cool anymore,” says Pierre-Olivier Essig, an analyst at AIR Capital.

In Europe, rising energy prices are leading to higher interest rates and bond yields, so banks and other sectors that stand to benefit from this—such as insurers—are expected to post strong results, says Nadezh Dufoss, Chief Investment Officer at Candriam.

The banking sector index ranked third in Europe in terms of performance, gaining 19% year-to-date. However, as a result, its P/E ratio has exceeded its historical average, meaning the stocks are no longer as cheap.

Shares of Britain's HSBC, Europe's largest bank, have risen by nearly a third since the start of the year. Most analysts—10 out of 21— recommend holding the stock, while 8 more give “Outperform” or “Buy” ratings, and 3 recommend “Sell.”

Shares of Poland’s largest financial and insurance company, Powszechny Zakład Ubezpieczeń, traded sideways for the first half of the year and then rose sharply, ultimately gaining more than 14% since the beginning of the year. There are no “bears” among analysts covering the stock: six analysts recommend buying it, and three more recommend holding it.

This year, Poland has outperformed the U.S. market, the European Stoxx 600, and the emerging markets index, thanks to economic growth (its GDP already exceeds $1 trillion) and corporate earnings. The country’s main stock index—the WIG20—has gained 30% since the start of the year, with half of that growth occurring in the last two months. Profits rose for both energy companies PGE and Orlen, as well as for retailers Dino Polska and Allegro.eu, thanks to a boom in the consumer sector.

It has been rising for four years now. From a historical perspective, stocks appear expensive—and at times very expensive—but thanks to high earnings, their P/E ratios appear more moderate, says Tomáš Hondo, an analyst at the Quercus TFI mutual fund.

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