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Twenty Stocks Set to Gain from a Weaker Euro

Monday, 17 May 2010 | 9:55 AM ET

Twenty European companies that have a high percentage of their revenue from regions outside the continent are likely to benefit from a weaker euro, according to Barclays Capital.

Analysts at Barclays chose twenty European stocks from the semiconductor, beverage, aerospace and defense, industrial, luxury goods and IT sectors.

Historically, analysts have seen that during periods of a weaker euro, European stocks underperform the S&P 500.

So, in order to maximize returns, the Eurostars20 "consists of 20 European stocks from that stand to benefit from transaction and translation gains as the euro weakens," Barclays wrote in a research note.

The analysts created an equal-weighted grouping from the 20 stocks to arrive at the Eurostars20, focusing on core Europe, with eight French and six German stocks.

The key stocks recommended by analysts are: LVMH, Luxottica, Infineon and ASML.

Other top pics included Siemens, Scheider Electric, Man Group, Metso, Gea Group, PPR, Bulgari, Luxxotica, Pernod Ricard, Remy Cointreau, EADS, Safran, Zodiac, Finnmeccanica, MTU Aero Engines, Infineon, ST Micro, ASML, SAP, Selection, and Market.

Although "the 720 billion euro stabilization package provides a backstop facility for financing sovereign debt, the strict austerity measures that are required to be followed by member countries raises both political and social concerns and questions the long-term economic potential of the euro zone," Barclays said.

We believe that the premium in valuation is justified given the relatively high exposure to better growth economies than the euro zone and potential upside earnings revisions as transaction and translation effects from a weaker euro come through," Barclays added.

"Our FX strategists forecast the EUR/USD declining to $1.20 in the next three months, based on the following reasons: 1) downside risk due to a potential inability to meet the requirements of the austerity reforms; 2) stress on GDP growth due to fiscal consolidation; 3) loose monetary policy; 4) possible political and social friction due to the austerity measures; and 5) expensive valuation relative to the USD."

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