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Europe Markets

Oct. 22, 2021, 8:20 a.m. EDT

L’Oreal drives gains and UBS says buy stocks in beaten-down European markets

By Barbara Kollmeyer

Consumer-good stocks drove gains for European stocks on Friday, after L’Oréal reported better-than-expected results while investors brushed aside downbeat purchasing managers index surveys for the region.

The Stoxx Europe 600 index (STOXX:XX:SXXP) rose 0.6% to 472.77. Of the major regional indexes, the German DAX (XEX:DX:DAX) gained 0.7%, the French CAC 40 (PAR:FR:PX1) surged 1.1% and the U.K. FTSE 100 (FTSE:UK:UKX) increased 0.5%.

On the economic front, flash eurozone composite and services PMI indexes hit six-month lows in October . “While the overall rate of economic growth remains above the long-run average for now, risks seem tilted to the downside for the near-term as the pandemic continues to disrupt economies and push prices higher,” said Chris Williamson, chief business economist at IHS Markit, in a news release.

Elsewhere, data showed U.K. consumer confidence fell in October for the third straight month amid deteriorating as expectations for the economy.

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

“We believe the global reflation story has further to run and expect continuedpositive performance in Eurozone equities, with the potential to outperform global peers,” said a team at UBS led by Adrian Zuercher, head chief investment officer at global asset allocation. They added that recent weakness should be viewed as an opportunity. The Stoxx 600 dropped 3.4% in September, its biggest monthly loss since October 2020, but the index has rebounded 4% so far this month.

L’Oreal (PAR:FR:OR) was the biggest gainer for the main index, lifting the consumer sector and driving outsize gains for the CAC 40. The French cosmetics and consumer-products company reported a 13.1% rise in quarterly organic sales against forecasts for a rise of 7.6%. The beat was driven by active, professional and luxe divisions.

L’Oreal will likely be able to keep up its outperformance in excess of 1.5 times industry growth helped in part by its “superior digital presence”, diversified exposure and approach to reinvesting, said UBS analysts Guillaume Delmas and Kate Rusanova, in a note to clients.

“With its 73% gross margin, L’Oreal’s exposure to fluctuations in commodity &transportation costs is intrinsically limited,” the analysts added.

Technology stocks were also on the rise with shares of ASML Holding (NAS:ASML) (AMS:NL:ASML) and SAP (ETR:XE:SAP) (NYS:SAP) up more than 2.5% each.

Remy Cointreau (PAR:FR:RCO) shares rose 2% after the drinks maker reported sales rose above expectations in its second quarter and said it’s targeting full-year operating profit growth, but declined to set out numerical guidance.

Renault (PAR:FR:RNO) stock rose 1.5% after the French auto maker said revenue fell in the third quarter, with a 22.3% drop in annual car sales. The company sees further production losses due to microchip shortages, but confirmed full-year operating margin guidance.

InterContinental Hotels Group (NYS:IHG) (LON:UK:IHG) reported its revenue per available room increased 66% in the third quarter on year, but remained 21% below 2019 levels. Still, the hotel group said performance continued to improve significantly in the period.

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