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.
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Gaurav S.
