Since Barron’s last screened the Stoxx 600 index for second-wave proof stocks with growth prospects last month, the threat of a rise in infections in Europe has become something of a reality.
France and Germany—two of the continent’s largest economies—both announced plans to enter a second lockdown last week. The strict one-month lockdowns imposed by French President Emmanuel Macron and German Chancellor Angela Merkel highlight the scale of the problem facing Europe. Macron even warned the second wave would be “harder and deadlier” than the first, causing 400,000 deaths in France, if nothing was done.
More regions of the U.K. have entered the government’s highest tier of restrictions amid growing calls for a national lockdown, while Spain has declared a state of emergency with a nighttime curfew in a bid to control the spread of Covid-19. Italy—once the epicenter of the virus—has also imposed tighter restrictions, including closing bars and restaurants at 6 p.m. local time.
The growing presence of Covid-19 in Europe along with new restrictions has impacted the pan-European Stoxx 600, which has fallen 5.4% to 341.76 points in October, as of the close on Oct. 29. However, it is still significantly higher than the index’s March 23 low of 280.43 points.
To find European stocks well-placed to weather a surge of Covid-19 cases and likely to grow in the years ahead, Barron’s screened for stocks that emerged from the first spike without too much damage: less than a 15% drop between Feb. 19 and March 23. A 15% fall, as experienced by Unilever, may sound steep but it puts the stock in the top 7.5% of performers in the Stoxx 600 over that period.
The companies must also be in the green from March 23 to date, eliminating stocks that benefited during the crisis and have fallen back since. The final metric requires companies to trade at no more than 25 times forward earnings estimates.
Second Wave-Proof
Companies in the Stoxx Europe 600 index whose stock held up during the coronavirus market rout earlier this year and were up from March 23 to Oct. 29 while offering long-term earnings growth prospects.
Data as of Oct.29
Source: FactSet
Over the past month, four stocks have exited the screen: Swedish hygiene products group Essity (ticker: ESSITY.Sweden), Swiss pharmaceutical company Galenica (SWX.Sweden), Swedish retailer ICA Gruppen (ICA.Sweden) and Dutch oil-and-gas storage multinational Royal Vopak (VPK.Netherlands).
Three stocks have also entered the screen: American Swiss consumer electronics maker Logitech (LOGN), Finnish pharma company Orion (ORNBV) and Dutch telecom group Royal KPN (KPN).
Logitech stock fell just 5.7% between Feb.19 and March 23. The shares have risen more than 95% since as the global shift toward working from home has caused demand for its products to surge. The stock is up 70% year to date, putting it on a similar footing to Amazon. com (AMZN) in terms of gains.
Until now, Logitech stock has been too expensive to make the screen, but its forward price-to-earnings ratio has fallen from 31.7 at the end of last month to 23.3 as earnings per share estimates have risen. The company increased its annual guidance in October after sales jumped 75% in the second quarter.
Orion’s entry into the screen is also due to the drugmaker’s forward price-to-earnings ratio falling below 25, again following a rise in earnings per share. The company, whose stock is more than 9% down year to date, raised its full-year outlook in October, expecting net sales to be at a similar or slightly higher level than in 2019 due to higher sales of its sedative Dexdor. Royal KPN re-entered the stock screen after strong recent share price performance.
Those exiting the screen have all seen their share price fall below their March 23 prices as the resurgence of the virus has affected broader market sentiment. Essity shares fell close to 8% on a single day in October as the tissue maker reported continued weak demand from businesses in the third quarter as sales slumped 12%.
Email: editors@barrons.com
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