Spotting analyst sentiment

The chart below highlights the mind-set of European investors right now: it is all about safety, safety, safety!

Investors are even more conservative than they were back in 2008, which is an incredible development. This is the reason many multi-national companies are currently trading at incredibly stretched valuations. The money flooding into the defensive areas of the market is still coming out of European cyclical stocks, such as the banking sector.

Defensive sectors

Quality premium

While the overall European equity market might not seem to be significantly cheap right now, many highly priced growth stocks are distorting the outstanding opportunity we are witnessing in the more value-oriented areas.

Quality premium

While growth has outperformed growth for a number of years now, in our experience these trends tend to turn violently and many investors simply miss it.  We see compelling opportunity in companies such as Assa Abloy, Bic and Intesa Sanpaolo.

Analyst sentiment

Analyst sentiment is currently depressed and is probably lower than at any time I can remember over my career.

Analyst sentiment 1

analyst sentiment 3

Every time the research community looks to take on any sort of risk, they are severely punished by the market. There is no point being brave if you are an analyst right now. However, this is following a somewhat familiar trend. Analysts are always bullish at the top of the market, and depressed when times are a little more difficult. The most bearish areas right now surround anything related to the European recovery – such as the big industrials or banks.

 

Stuart Mitchell is managing partner at S.W. Mitchell Capital

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