L’Oréal generates gains and UBS says it is buying shares in troubled European markets

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Consumer goods stocks pulled the gains in European stocks on Friday, after L’Oréal reported better-than-expected results as investors dismissed purchasing manager index surveys for the region.

The Stoxx Europe 600 SXXP index,
+ 0.57%
rose 0.6% to 472.77. Among the main regional indices, the German DAX DAX,
+ 0.61%
gained 0.7%, the CAC 40 PX1,
+ 0.86%
jumped 1.1% and the UK FTSE 100 UKX,
+ 0.39%
increased by 0.5%.

On the economic front, eurozone composites and services flash PMIs hit six-month lows in October. “While the overall rate of economic growth remains above the long-term average for now, risks appear to be on the downside in the short term as the pandemic continues to disrupt economies and push prices up,” he said. Chris Williamson, chief economist at IHS Markit, said in a press release.

Elsewhere, data showed UK consumer confidence fell in October for the third month in a row as expectations for the economy deteriorated.

But UBS shifted European equities from neutral to priority on Friday, citing accommodative monetary and fiscal policy, economic growth and attractive earnings and valuations.

“We believe the story of global reflation must continue and we expect it to continue
positive performance of eurozone equities, with the potential to outperform its global peers, ”said a UBS team led by Adrian Zuercher, chief investment officer in charge of global asset allocation. They added that the recent weakness should be seen as an opportunity. The Stoxx 600 fell 3.4% in September, its biggest monthly loss since October 2020, but the index has rebounded 4% so far this month.

L’Oréal OR,
+ 5.65%
was the biggest winner of the main index, lifting the consumer sector and leading to outsized gains for the CAC 40. The French cosmetics and consumer products company announced a 13.1% increase in sales quarterly biologics against a forecast of 7.6%. The pace was carried by the active, professional and luxury divisions.

L’Oréal will likely be able to maintain its outperformance at more than 1.5 times the industry’s growth, helped in part by its “superior digital presence”, diversified exposure and reinvestment approach, UBS analysts said. Guillaume Delmas and Kate Rusanova, in a note to clients.

“With its gross margin of 73%, L’Oréal’s exposure to fluctuations in raw materials and
transport costs are inherently limited, ”added the analysts.

Tech stocks were also up with shares of ASML Holding ASML,
+ 1.92%

ASML,
+ 3.74%
and SAP SAP,
+ 1.18%

SAP,
+1.06%
up more than 2.5% each.

Rémy Cointreau RCO,
+ 2.13%
shares rose 2% after the beverage maker said its sales exceeded expectations in the second quarter and said it was aiming for full-year operating profit growth, but declined to give quantified forecasts.

Renault RNO,
+1.03%
the share rose 1.5% after the French automaker said its revenue fell in the third quarter, with annual car sales falling 22.3%. The company sees further production losses due to chip shortages, but confirmed its operating margin forecast for the full year.

InterContinental Hotels Group IHG,
-2.98%

IHG,
-2.92%
said its revenue per available room grew 66% in the third quarter year-on-year, but remained 21% below 2019 levels. Nonetheless, the hotel group said performance continued to improve significantly during the period.


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