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Seek value in European small-caps given current market volatility

Publication Date: 17 Oct 2018 - By Gaurav Sharma (Associate Editor ReachX) By Gaurav Sharma (Associate Editor ReachX)
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Equity Fundamental Equity UK EU ex-UK Biotechnology Financial Services Real Estate Consumer Technology

European small-caps may have been laggards this far in to 2018, but at least they are still outperforming large-caps, opines a leading investment bank. 

In a note to clients, analysts at Credit Suisse say there is value to be found in selected areas of the small-cap market. 

Often Small-caps' performance versus large-caps is closely correlated with PMIs [Purchasing Managers’ Indices] which have been weak of late, pointing to a possible stunted earnings momentum.

Since leading indicators in Europe are not expected to improve in the short-term, an inference could be drawn to shy away from small-caps. However, Credit Suisse says such a blanket assumption would be a fallacy.

A closer examination, say the bank’s analysts, would actually point to a rise in earnings per share (EPS) estimates in a few countries such as Switzerland, Italy, Norway and Ireland

Overall, Credit Suisse's main small and mid-cap ideas include ADO Properties (ETR:ADJ), Bodycote (LON:BOY), Cassiopea (SWX:SKIN), Gerresheimer (ETR:GXI), Inmarsat (LON:ISAT), Sophos (LON:SOPH), Ultra Electronics (LON:ULE), and William Hill (LON:WMH).

While the bank urges investors to give small-caps another look, it also urges caution on venturing into Italian small-caps, where seeking more export-oriented companies should be the preferred route given the country's ongoing political uncertainty.

Disclosure:

I have positions in the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

Gaurav Sharma (Associate Editor ReachX)

 

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