European markets lost more than 20% in less than two weeks, an exceptional move that has occurred only three times since 1987. The markets have fallen into bear territory which, based on historical precedent, suggests 10% further downside from current levels. Although at first glance valuation now seems attractive, we believe that further earnings cuts are likely given that markets do not yet fully reflect the impact of the coronavirus outbreak on the economy and corporate earnings. In this environment, we want to closely adhere to our time-tested methodology. European equity markets continue to be in a Downtrend, so we do not encourage clients to commit any new capital to European stocks until we see a strong follow-through day.
In the attached report and accompanying webinar, Executive Director, Research Analyst Tristan d’Aboville and Equity Research Analyst Ruhell Amin provide detailed screens using the O’Neil flagship equity research platform PANARAY® to assess the best stocks based on two scenarios. The first scenario assumes further downside risk and a gradual recovery, which suggests focusing on defensive names with above average fundamental characteristics. The second scenario suggests focusing on washed-out former leaders that may bounce back rapidly in a V-shaped recovery. They will also present an update of the European Focus List, which continues to create alpha versus its benchmark despite the poor market environment.
You can listen to the accompanying webinar in the Research Library on PANARAY® or on our website any time after 11am ET on Thursday, March 12.
