For the last decade, it has been easy – and highly profitable – to allocate the marginal pound in your portfolio to the largest American technology companies. However, it now looks as if the “easy money” has already been made in this trade and investors should consider where growth will come from over the next decade, not the last one.
For investors considering opportunities away from the US, Europe is beginning to step back into the spotlight. Contrary to popular belief, European stocks are not a legacy trade. Although the continent's large-cap indices lean heavily on traditional sectors, its small- and mid-cap segments – which comprise more than 2,000 companies – are awash with innovative businesses, which often command a dominant share of their sectors while being virtually unknown to most investors.
Three European stocks to consider
Our fund heads off the beaten track to identify European stocks that may be beyond the radar screens of larger funds and outside the reach of most analysts. Alongside a proprietary screening process, we travel around Europe on a weekly basis meeting management teams to assist us in building a high-conviction, concentrated portfolio of European stocks. Because we invest in smaller companies, we can build very deep relationships with them, engaging closely with management.
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This part of the market has been through a challenging period in recent years, but the pandemic, the resurgence of inflation and the subsequent rise in interest rates have forced businesses to adapt, making European small-caps far more resilient than most people realise. With the market only just beginning to recognise the quality of these businesses, they may not remain small caps for long.
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As the continent faces up to its need significantly to renew and strengthen its often creaking infrastructure, Netherlands-based Royal BAM Group (Amsterdam: BAMNB), a construction and infrastructure company, is well placed to profit. The group could be a major beneficiary of greater government spending on infrastructure in the coming years and it has a significant backlog of orders coming through its pipeline. The market has begun to recognise the quality of the company in recent years, but we believe it has further to run as infrastructure spending continues to gather pace across Europe.
AcadeMedia (Stockholm: ACAD) is a Swedish company that has broadened its geographic footprint across the Nordics and into Germany, providing early-years education. It is largely disconnected from macroeconomic shocks such as the oil price or US tariffs and enjoys a dominant position in its sector. The business is highly cash-generative and demand for its service in the future should remain robust. The stock is trading on an attractive price/earnings ratio of 11, making it an interesting long-term opportunity.
Einhell (Frankfurt: EIN), based in the Bavarian countryside, is a developer and manufacturer of DIY and power tools. The business led the way in developing battery-operated tools and is globally competitive on a cost basis, even against Chinese competitors. Einhell is starting to expand its reach across Europe and further afield.
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