Breaking down Morgan Stanley’s list of top European stocks to own

Morgan Stanley recently updated its list of top European stock picks. The note mentions the new additions, the underlying selection process, and the comparative performance against key indices.

Morgan Stanley’s European Top Picks have consistently outperformed the broader market since their inception in September 2021.

The selected stocks have generated a total return that exceeds the MSCI Europe index by 17.2 percentage points and the MSCI Europe equal-weighted index by 28.7 percentage points.

The latest update to Morgan Stanley’s European Top Picks list includes six new stocks: Barclays, Fresenius SE (ETR:), Getlink, Rheinmetall, Saipem, and Total. These companies were selected based on their strong fundamentals, strategic positioning, and potential for outperformance in the current market.

Barclays, a prominent UK-based financial institution, is well-positioned to benefit from the Bank of England’s rate hikes. The bank’s strong capital position and solid asset quality make it resilient to the challenges of a higher interest rate environment.

Furthermore, Barclays’ diversified business model, including a robust investment banking division, enables it to capitalize on growth opportunities across various segments of the financial market.

Fresenius SE is well-positioned to capitalize on the increasing demand for healthcare services. As the world recovers from the COVID-19 pandemic, the global healthcare company is expected to see a rebound in elective surgeries and other non-emergency medical procedures.

Fresenius SE’s strong presence in both European and international markets provides a diversified revenue stream, making it a stable growth option in the healthcare sector.

Getlink, the operator of the Channel Tunnel, is well-positioned to benefit from the growing travel and trade between the UK and Europe.

As cross-border mobility increases, the company’s infrastructure assets are expected to see greater usage.

Additionally, Getlink’s investments in sustainable transport solutions align with the European Union’s efforts to reduce carbon emissions, potentially creating new growth opportunities.

Rheinmetall is expected to benefit from increased demand for its products due to rising geopolitical tensions and a renewed focus on defense spending in Europe.

The defense technology company’s portfolio includes advanced military technology and vehicles, which are likely to see increased orders as EU countries bolster their defense capabilities. Rheinmetall’s strong relationships with European governments and its reputation for innovation in defense technology further enhance its growth prospects.

Saipem is currently undergoing a restructuring process designed to position the company for future growth. Given the ongoing recovery in the global energy market, Saipem’s expertise in offshore drilling and energy infrastructure is expected to be in high demand.

Furthermore, the engineering and construction firm’s initiatives in renewable energy projects align with the growing emphasis on sustainability in the energy sector, providing a promising avenue for future growth.

Total is one of Europe’s largest energy companies, with a strong balance sheet and a diversified portfolio that includes both traditional energy sources and renewable energy investments.

The company is well-positioned to navigate the energy transition, with strategic investments in solar, wind, and hydrogen projects.

Moreover, Total’s robust upstream operations ensure it remains a key player in the global energy market, while its commitment to reducing carbon emissions positions it favorably for future regulatory environments.

Morgan Stanley’s European Top Picks are selected through a rigorous process that involves detailed analysis by their equity research teams. The stocks chosen for the list are those with an Overweight rating, indicating that the analysts expect these stocks to outperform their respective sector peers. The selection process also takes into account the broader market environment, sectoral trends, and specific company fundamentals.

The underlying strategy focuses on identifying stocks with attractive risk-reward profiles and significant upside potential across various market conditions.

Morgan Stanley analysts continuously monitor these picks, making adjustments as needed to reflect evolving market dynamics and company developments. This approach ensures the Top Picks remain relevant and aligned with the current investment environment.

The inclusion of defensive and cyclical stocks demonstrates a balanced approach that aims to provide stability and capture growth in sectors poised for recovery or expansion.

For example, Barclays and Total offer exposure to financials and energy, respectively, which are expected to benefit from rising interest rates and the global energy transition.

Additionally, companies like Fresenius SE and Rheinmetall provide more defensive growth opportunities in healthcare and defense.