European Stocks For 2026!

European Asset Class Overview – 2026

Key Concepts: Value Investing, Margin of Safety, P/E Ratio (Price-to-Earnings Ratio), Dividend Yield, Cyclical Stocks, Developed Markets, Fiscal Policy, Small-Cap Stocks, Buybacks, Global Equity Markets.

I. Global Equity Market Context & European Performance

The speaker begins by framing Europe within the broader global equity market, noting that the US currently dominates with 65% of global equity, while Europe represents only 11% – a decline from previous highs. Over the past 15 years, US equity markets have significantly outperformed developed markets overall. However, the speaker suggests this trend may be shifting due to the current dollar situation. European equity returns over the last 15 years have been driven by valuation increases, dividends, and to a lesser extent, earnings growth, compared to the US. Interestingly, excluding Nvidia, European equities have performed well over the last three years, achieving this on lower valuations.

II. Valuation & Earnings in the European Market

The current P/E ratio for European equities is 15, considerably lower than the S&P 500’s 22 (though it has adjusted upwards recently). The speaker references a previous analysis of the Amsterdam Stock Exchange, estimating an average potential return of around 5% considering growth and valuations. However, earnings growth over the past decade has been poor, with a recent uptick following the pandemic. Consensus projections anticipate continued modest earnings growth globally, mirroring the historical pattern of limited sustained growth (only occurring in approximately two out of the last 15 years).

The speaker highlights that lowered interest rates and expected continued low rates are intended to support European markets, and the stock market has already reacted positively. However, he cautions that European equities haven’t seen substantial gains over the past 25 years, prompting a re-evaluation of whether current levels represent a bubble or genuine opportunity.

III. Analysis of Top European Stocks (Large Caps)

The speaker then analyzes specific companies within the European stock index, categorizing them into top and bottom 15 performers.

• ASML: Recommended for purchase during semiconductor cyclical downturns when market exuberance is low, capitalizing on strong fundamentals.
• TotalEnergies: A 10% shareholder yield (dividends + buybacks) dependent on oil prices. The speaker references a previous video discussing the impact of oil prices – positive performance if oil remains at $80, potential dividend cuts if it falls to $50 or lower, creating a value investing opportunity.
• SAP: P/E ratio of 34, with uncertain future prospects.
• Siemens: P/E ratio has risen from 10 to 25, indicating increased valuation.
• DHL: Stock price increasing, but dividend yield has decreased to 4% as the market has recognized its value.
• BASF (Chemicals): Downturn in the chemicals sector, offering a 5% dividend yield.
• Pernod Ricard: Question mark regarding growth beyond dividends.
• Zara/Inditex & Caring: Expensive valuations.
• Stellantis: Previously discussed, with potential for growth, though the speaker acknowledges facing criticism in the comments regarding this assessment.
• Exor: Discount is not a real discount.
• Construction Companies: Booming but considered too risky and expensive.
• Danone: 3% yield, a solid business but lacking significant upside.
• Deutsche Börse & Moes: Good companies, but with small dividends and high valuations.
• Albert Hayne: Good, but expensive despite a 5-6% yield plus buybacks.
• Fashion Companies: Volatile, with potential for profit if bought and sold strategically.
• Nokia: Still viable, but expensive.
• Vonovia: Dividend yield fluctuating, currently at 5%, with uncertain future.

The speaker concludes that the top European companies are priced similarly to, or even higher than, their US counterparts for comparable quality.

IV. Focus on Small-Cap Opportunities

The speaker expresses a preference for smaller-cap stocks in Europe, believing they offer better value and potential for growth. He highlights examples like a 10% dividend yield stock (minus Norwegian taxes), Gregs, Nomad Foods, and Domino's in the UK. He directs viewers to his quadrant video and research platform for further information on these smaller caps.

V. Comparative Analysis: Euro Stocks 50 vs. S&P 500

When asked whether to invest in the Euro Stocks 50 or the S&P 500, the speaker leans towards the S&P 500 due to the strength of capital flows, buybacks, and potential for further growth. He suggests that a recession in Europe could lead to even lower lows for European equities. Over the past five years, the indices have performed equally.

VI. Key Argument & Perspective

The speaker’s central argument is that value and safety can still be found in European equities, particularly within the small-cap segment. He advocates for a value investing approach, focusing on business ownership, margin of safety, and identifying opportunities during cyclical downturns. He cautions against overpaying for popular, large-cap stocks, suggesting they are often priced exuberantly.

Notable Quote: “I prefer to leave these big companies to pension funds I simply cannot compete to the flows to the investments there and when I look at the valuations those are stretched when I compare the risk and reward.” – Sven (the speaker)

Data & Statistics:

• US equity market represents 65% of global equity.
• European equity market represents 11% of global equity.
• European equities have performed well on lower valuations (P/E ratio of 15 vs. S&P 500’s 22).
• Average potential return on Amsterdam Stock Exchange index: ~5%.
• Dividend yields and buyback yields vary significantly across companies.

Conclusion:

The speaker advocates for a selective approach to European equities, emphasizing the importance of value investing and focusing on smaller-cap companies that offer both dividend income and potential growth. While acknowledging the challenges in the European market, he believes opportunities exist for investors willing to look beyond the large, expensive companies and prioritize margin of safety. He ultimately suggests the S&P 500 may currently offer a more compelling investment opportunity due to stronger market dynamics.