European stocks are set to get a boost. As the world becomes more divided and unpredictable, countries are shifting their focus back to producing things at home. They are realising that while there are benefits to global trade and specialisation, relying too heavily on other nations leaves them exposed. Europe, which embraced globalisation and trade, is left vulnerable.
The continent has therefore set up several major funding programmes to strengthen its own defence, infrastructure and industrial capacity. We call this the “Making Europe Great Again” agenda. It is creating a potential tailwind for European stocks.
Three European stocks to watch
Ørsted A/S (Copenhagen: ORSTED) is the largest energy company in Denmark and a global leader in the development, construction and operation of wind farms. It boasts the offshore wind farm with the highest capacity in the world. Renewables are seen by Europe as a solution to its dependence on gas imports.
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Despite a long-term decline in the share price, Ørsted has seen key financial metrics, including profit and cash flow, increase since 2021. The consensus among analysts is that Ørsted has become a buying opportunity, with increasing levels of cash and tradeable assets improving the company's financial health.
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Ørsted is engaged in projects spanning multiple continents, notably the completion of Hornsea 3, a wind farm in the North Sea off the UK coast that could provide continuous power to 3.3 million homes. This project and others are eligible for support from €800 million of a €1.2 billion loan facility from the European Investment Bank that remains outstanding.
Our second European stock is ACS Group, or Actividades de Construcción y Servicios (Madrid: ACS), a Spanish company providing construction and related services. ACS recently took the decision to increase its overall exposure to digital infrastructure, taking a primary role in a partnership with BlackRock under which the €2 billion joint venture will collaborate to build a data-centre pipeline with a capacity of 1.7 gigawatts.
ACS has made clear that this is one step on the journey towards establishing the firm as a global leader in the digital-infrastructure sector. This shift away from third-party contracted involvement to ownership and development of data-centre facilities clearly displays ACS's desire to insert itself into this rapidly expanding industry. ACS has predicted that the firm's overall income from digital infrastructure will rise from €10 billion in 2025 to €25 billion in 2030, suggesting scope for considerable returns in future.
Thales (Paris: HO) is a French company providing various offerings in the defence, aerospace and digital-security sectors. Defence makes up 50% of sales. Long-term public-procurement contracts predominate in this area, making Thales a potential recipient of Europe's defence-spending splurge.
Thales has signed both public and private partnerships, including making a 60% jump in the production of radar antennas for the Netherlands' Ministry of Defence and a deal with Renault to produce 1,000 units per month of the Thales Toutatis loitering-munitions drone, up from 150 per year.
The second agreement is particularly noteworthy. The use of drones in the conflict between Russia and Ukraine has brought the concept into the mainstream. From early 2024 through to summer of the following year the number of drones used in the conflict increased 1,000%. With European countries realising their own need to catch up in this regard, Thales appears to be positioning itself to follow this trend upwards.
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