Overlooked European stocks that offer income and growth potential
Professional investor Alex Wright highlights three European stocks with recovery potential and value


We invest in attractively valued companies with the potential for positive change. This typically means investing in overlooked stocks where there is little or no value ascribed to any recovery potential. The market is often slow to recognise change in out-of-favour stocks, which gives us time to undertake our due diligence and build conviction in the positive change thesis. It can be centred around either internal or external change; ideally, a combination of both. If things improve as we expect, there should be significant upside as the consensus view changes and new investors buy into the story.
Overlooked European stocks
Imperial Brands (LSE: IMB) has undertaken a significant turnaround under new management, improving the execution of its strategy and strengthening its balance sheet. It is catching up with the competition in developing a range of less harmful next-generation products. Our investment thesis is two-pronged. We can make very strong returns simply from its generous dividends and share buybacks. Imperial is returning the equivalent of 16% of its market value to shareholders this year alone.
However, if regulations governing next-generation products do tighten, as recent signs in the UK and, importantly, in the US suggest, then these categories can grow much faster and be far more profitable. Over time this could be transformational, as a much larger proportion of the firm’s products will boast far greater longevity than the current tobacco business.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
DCC (LSE: DCC) is a global distributor of liquefied petroleum gas (LPG) and oil, as well as medical and technology products. The group has proved its ability to build scale in fragmented sectors through a disciplined approach to mergers and acquisitions. It boasts a high-quality business, a strong balance sheet and a long record of generating attractive returns.
However, its shares are trading on multiples usually seen at the trough of a cycle owing to investors’ concerns that its energy division will come under significant pressure as demand for fossil fuels declines. We expect the decline in demand to be slower than the market anticipates and offset by higher margins thanks to the consolidated nature of the market. Additionally, we believe that the company’s ability to distribute alternative lower-carbon-intensive energy sources to customers cheaply through its existing infrastructure is underappreciated. It should help the group sustain or even improve high returns.
Banks have been another unloved sector since the global financial crisis. However, more stringent regulatory oversight has forced banks to increase capital ratios, boost funding levels and refrain from riskier lending. Higher interest rates have allowed them to improve their profitability significantly.
One of our largest holdings in the sector is Standard Chartered (LSE: STAN), a diversified banking group with a focus on emerging markets, especially Asia. Management is focusing on better cost control. Revenues should be supported by the group’s broad sensitivity to global interest rates and the structural growth of its wealth and financial markets divisions, which account for 40% of revenues. A strong start to 2024 and a plan to buy back a significant portion of its shares (around 9%) gives this story credibility.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Alex Wright has honed his distinctive contrarian value investment approach over a career spanning 23 years with Fidelity International. He followed the traditional Fidelity approach to becoming a Portfolio Manager beginning his career as an analyst and rotating across a number of sectors. In 2008, he started managing the Fidelity UK Smaller Companies Fund, which he managed until 2014. In 2010, he broadened his remit to the full market cap spectrum, began working more closely with Sanjeev Shah, before taking over the management of Fidelity Special Values PLC from Sanjeev in September 2012 and Fidelity Special Situations Fund in January 2014.
-
Top 10 areas with the biggest inheritance tax bills – is your town on the list?
People in some of the wealthiest parts of London pay the most inheritance tax – but there are a few areas outside the capital where big bills are paid when a loved one dies
-
Inheritance tax reform ‘largely protects family farms’ – what are the alternatives?
Independent analysis of the government’s inheritance tax reforms has found eight out of 10 farming estates will be able to pay their IHT bill without having to sell off parts of the farm
-
8 of the best properties for sale with shooting estates
The best properties for sale with shooting estates – from an estate in a designated Dark Sky area in Ayrshire, Scotland, to a hunting estate in Tuscany with a wild boar, mouflon, deer and hare shoot
-
What we can learn from Britain’s "Dashing Dozen" stocks
Stocks that consistently outperform the market are clearly doing something right. What can we learn from the UK's top performers and which ones are still buys?
-
The most likely outcome of the AI boom is a big fall
Opinion Like the dotcom boom of the late 1990s, AI is not paying off – despite huge investments being made in the hope of creating AI-based wealth
-
The rise of Robin Zeng: China’s billionaire battery king
Robin Zeng, a pioneer in EV batteries, is vying with Li Ka-shing for the title of Hong Kong’s richest person. He is typical of a new kind of tycoon in China
-
Europe’s forgotten equities offer value, growth and strong cash flows
Opinion Jonathon Regis, co-portfolio manager, Developed Markets UCITS Strategy, Lansdowne Partners, highlights forgotten equities he'd put his money in
-
How retail investors can gain exposure to Lloyd’s of London
It’s hard for retail investors to get in on the action at Lloyd’s of London. Here are some of the ways to gain exposure
-
The flaw in Terry Smith’s strategy at Fundsmith
Opinion Fundsmith has invested in some excellent companies, but it has struggled to decide when to sell, says Max King
-
The goal of business is not profit, but virtue
Opinion Serve your customers well, and the profits will follow, according to a new book. It rarely works the other way around, says Stuart Watkins