Potentially Notable Stocks in U.S. Market Gaining Traction

Potentially Notable Stocks in U.S. Market Gaining Traction

2025 Stock Market Outlook: Expanding Your Portfolio Beyond the Magnificent Seven

Last year, the USA and the Magnificent Seven reigned supreme in the stock market. But as we step into 2025, it's time to cast a wider net and consider some other intriguing stocks that might outshine the heralded names of 2024.

The U.S. stock exchanges, specifically the S&P500, MSCI ACWI, and DAX, have demonstrated impressive returns in 2024, with the S&P500 leading the pack with a whopping 33% gain. The Magnificent Seven—Nvidia, Meta, and others—were the catalyst for these double-digit returns, outsing the U.S. indices with their outstanding performance.

However, the new year might prove to be a golden opportunity to explore securities outside the United States. Goldman Sachs posits that the powerful outperformance of the Magnificent Seven could dwindle in 2025, largely due to their anticipated lower earnings growth in the coming twelve months. Zacks Investment Research further predicts that the remaining 493 companies in the S&P500 could surpass the Mag7's earnings growth for the first time in years during Q3 2025.

As we dive deeper into international waters, European stocks appear especially enticing. These investments have demonstrated robust performance in 2025, with the Stoxx Europe 600 anticipated to report a 2.3% rise in first-quarter earnings, surpassing expectations. Moreover, European stocks are relatively more affordable, trading at a significantly lower valuation than the leading U.S. index. The P/E ratio for the Stoxx Europe 600 is approximately 13, while the S&P 500 hovers around 22, driven primarily by the high valuation of the Magnificent Seven (P/E of 41).

In light of these factors, European stocks could be a shrewd choice for investors seeking to diversify their portfolios. By investing in European stocks, investors not only capitalize on their strong earnings growth but also secure a more affordable entry point compared to their U.S. counterparts.

For a deeper exploration of this topic and recommendations on specific European stocks, consider reading Euro am Sonntag issue 03/2025.

Further Reading

• Savings Offer Too Good to Be True? BaFin investigates an offer that seems too good to be true, leading experts to issue warnings concerning its legitimacy.

Enrichment Insights

When pondering attractive non-USA stocks, especially European ones in 2025, several factors make European stocks appealing, including their performance and lower valuation compared to U.S. indexes. Here's a taste of what you'll find if you delve deeper:

European Stock Attractiveness

1. Performance and Valuation:
2. European stocks have shown impressive growth in 2025, with the Stoxx Europe 600 expected to report a 2.3% rise in first-quarter earnings, outperforming expectations.
3. European stocks are generally trading at a lower valuation premium compared to the S&P 500. For example, the S&P 500 is trading at a 30% premium to its historical average, while Europe is at a 10% premium.
4. Economic Support:
5. Expansionary policies, including increased infrastructure spending and supportive monetary conditions, are expected to boost European corporate health.
6. Increased defense spending and fiscal stimulus packages, such as Germany's EUR 500 billion stimulus, are set to augment corporate profitability.

Specific Stocks

1. LVMH Moët Hennessy Louis Vuitton (LVMH.MC):
2. Despite recent fluctuations, LVMH is viewed as undervalued by some analysts, trading below its fair value estimate.
3. Burberry (BRBY.L):
4. Burberry is considered a 5-star stock, trading below its fair value estimate, offering growth potential.
5. Technology Sector:
6. Technology shares have rallied globally, making this sector particularly attractive for investors seeking growth.

Considerations

• Diversification: Investing in European stocks offers potential portfolio diversification, minimizing volatility amid uncertain U.S. policy and market conditions.
• Trade Dynamics: While trade tensions pose risks, European stocks have shown resilience, especially as global trade war dynamics evolve.

Investing in European stocks could be a smart move for those aiming to diversify their portfolios in 2025, as predicted earnings growth might surpass the Magnificent Seven, and European stocks are relatively more affordable compared to U.S. indexes, with a P/E ratio of approximately 13 for the Stoxx Europe 600 compared to the S&P 500's P/E of 22, primarily driven by the high valuation of the Magnificent Seven. In addition to performance and valuation, European stocks also benefit from expansionary policies, increased infrastructure spending, and supportive monetary conditions, which are expected to bolster corporate health. Some specific European stocks that may be worth considering are LVMH Moët Hennessy Louis Vuitton, Burberry, and technology shares, thanks to their growth potential.

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