European markets have largely performed well this year, with some market watchers keeping a close eye on the region and saying it could have “a bigger tailwind than the U.S.” The benchmark is up 10.8% year to date and 16.3% last year. Those looking for opportunities in the region can focus on Goldman Sachs’ selection of “alpha” stock opportunities. Alpha stocks are those that have the ability to beat the market. “Our macro team expects solid economic growth and monetary policy easing in the second half of 2024. While the year-to-date rally in equities suggests this optimism has been priced in, with market correlations at 5-year lows, we still see alpha opportunities potential,” analysts at the investment bank wrote in a May 23 research note. Goldman’s opportunity list includes stocks with “deep value” and “defensive growth” characteristics. Here are five of them. Among the “high value” stocks favored by Goldman Sachs are British sports fashion retailer JD Sports Fashion, aviation holding company International Consolidated Airlines Group (IAG) and Danish facilities management company ISS. The bank added that the shares were “cheaply priced and have room for upside compared to consensus expectations”. JD: Goldman Sachs believes the stock is “compellingly valued” at nine times 2024 earnings on the back of attractive earnings growth. The bank said this was thanks to “strong revenue trends and stable gross margin dynamics”. The company’s shares trade in the First Trust United Kingdom AlphaDEX Fund (weight 1.2%) and Goldman Sachs ActiveBeta Europe Equity ETF (weight 0.3%). IAG: Goldman Sachs notes that the company is able to “sustain elevated margins” during the current market cycle due to its strong market position in a “relatively more consolidated market.” The bank’s analysts added that this would translate into better “free cash flow generation, driving deleveraging and attractive shareholder returns”. IAG stock has a weighting of 1.2% in the U.S. Global Jets ETF. ISS: Goldman Sachs said the company will be “re-rated” over the next 12 months, likely due to stronger-than-expected organic growth and margins this year. Analysts at the bank expect a market return to shareholders of 8% this year “with the possibility of substantial buybacks beyond this year.” ISS shares trade in the iShares MSCI Europe Small-Cap ETF with a weight of 0.2%. ‘Strong revenue prospects’ Growth stocks favored by Wall Street banks include those with “strong revenue prospects and reasonable growth-adjusted valuations.” On the list are Dutch payments company Adyen and semiconductor manufacturer ASML, both of which are on Goldman Sachs’ conviction list. Adyen: Goldman Sachs views the stock as “the clear market leader in high-featured, full-end, global multi-channel products based on its single, fully integrated platform.” The bank analyst added that Adyen’s “growth-adjusted valuation is reasonable and believes share price weakness beyond the first quarter of 2024 provides an attractive entry point.” ASML: Goldman Sachs says the company “Having a competitive moat in the high-NA field for decades will be extremely difficult to replicate in at least the next 10-20 years.” Adyen and ASML are both listed on Euronext Amsterdam. Adyen also trades in the United States under the American depositary receipt ADYYF, while ASML has a secondary listing on Nasdaq. —CNBC’s Michael Bloom contributed to this report.
