Where to invest in Europe: 10 stocks that investment banks are betting on

After the fall rally, the U.S. has all but exhausted its undervaluation, while Europe has not. According to Morningstar, European companies are trading at 0.96 price/fair value - nearly 4% below fair valuation. The U.S., on the other hand, has moved closer to full value. Oninvest columnist Yedige Kasymzhan compared the valuations of major investment banks and found ten ideas for investment in Europe

Bank stocks remain the main driver of the European market in 2025, with the Stoxx 600 Banks Index up 57%, outperforming the overall market by almost four times.

The best securities in the sector, as noted in its November reports Barclays - French Societe Generale and UniCredit. Their shares have grown the most: since the beginning of the year by 109.2% and 60.8% respectively. Analysts note that the banking sector in France is recovering, despite the general recession in the country: now the growth of loans is accelerating, the number of deposits is slightly declining - which usually happens when rates fall, revenue is growing again, and operating costs remain under control.

On Societe Generale, analysts maintain an "above market" recommendation with a target price of €59.2, up 4.2% from the closing price on Nov. 19.

UniCredit reported third-quarter revenue slightly above market expectations, but fee and trading income grew 7% stronger than expected, while expenses were 2% lower. Shares slipped 2.5% on the day of the report's publication, Barclays attributed this to profit taking after strong growth. On November 13, analysts raised their target price on UniCredit shares from €63 to €67.5 and maintained an "above market" recommendation.

Another favorite in the banking sector is the British HSBC. According to Citi analysts, it is one of the best companies in Europe. According to LSEG, the British bank's shares have a potential upside of 3% with an average target price of £10.8. Despite the low target price, the forward price-to-earnings ratio is 9.8, below the sector average of 10.2.

Earnings forecasts for 2025 for banks are revised upward more frequently than other sectors, and their stocks continue to trade at a discount relative to historical levels.

Kepler Cheuvreux highlights three key dividend stories in Europe - Vonovia, Veolia and BASF. The common thesis: high yields of 4.5 to 5.6% per annum, with clear capital appreciation potential of 32% to nearly 80%. Analysts call these companies "idea-rich" because they offer both upside and stable payouts.

Vonovia is the largest owner of residential real estate in Germany and one of the few beneficiaries of the chronic housing shortage. The rate of new construction remains low, there is virtually no vacant housing, and the population is growing: all of this supports rising rental rates, including the segment regulated under German law.

The stock trades at a price-to-earnings multiple of 0.65, well below historical levels. The dividend yield is about 4.5%.Kepler Cheuvreux considers the securities undervalued and sees the main potential in the gradual recovery of transactions in the real estate market. The target price is €46, up 76.6% from the closing price on November 19.

Veolia operates in water treatment, waste recycling and environmental solutions for cities and businesses. The company is benefiting from the transition to a green economy and increased environmental regulation in Europe. Analysts forecast the fastest dividend growth in the sector, with a current yield of about 5%.

Kepler expects a turning point in 2026, when the impact of new projects will be visible in reporting. The target price is €42, 47.3% above the closing price on November 19.

BASF is called the "favorite of the sector" - the company is going through a revaluation of its assets and changing its business model. It has already announced the sale of the Carlyle paint business for €7.7 bln, and is preparing a partial IPO of its agricultural division with a possible valuation above €20 bln. An additional factor is lower energy prices and a possible reversal of the global chemical cycle. BASF has restarted its dividend strategy: a minimum payout of €2.25 per share plus a €4 bln buyback - the first part starts in November 2025. The quotation growth potential is 32%, the target price is €57.

Citi believes that in Europe, only a few companies drove the market's growth in recent months, and their share of the market's impact has been higher than usual. In the U.S., about 75% of the three-month return came from five stocks, while in Europe it was nearly 40%. This market characteristic has historically sometimes preceded corrections, but Citi emphasizes that by itself it does not mean that the market will necessarily go down.

Among European companies, Citi highlights ASML, LVMH, AstraZeneca and Nestle.

According to LSEG, ASML has an average upside of 7% and a target price of €929. However, the price-to-earnings ratio is at 37, while the median value for the sector is 17. That means the company is trading at twice the price of similar companies. A total of 35 analysts have forecasts for the company: 25 of them recommend "buy", nine recommend "hold" and one recommends "sell".

Despite general skepticism about luxury, Citi continues to believe in LVMH. LSEG's consensus target price for LVMH is €609, down 1% from the closing price on Nov. 19. Out of 29 analysts, only 17 of them recommend buying the company's stock. The company is trading at nearly three times the price of its peers: The P/E is at 29 points versus 11.7 for the sector.

Nestle shares, according to LSEG, could rise 9% - with an average target price of CHF 86.7. The company's P/E is 18.4 points, which is almost twice as high as the sector. A total of 24 analysts have forecasts for the company: 11 of them recommend "buy," another 11 recommend "hold," and two recommend "sell."

Although the shares of British pharmaceutical company AstraZeneca have a potential of 2%, 21 analysts out of 25 recommend buying its shares. The company's forward P/E is 17.4 points, which is slightly above the sector median of 16 points.

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