We recently compiled a list of the 8 Best European Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where Linde plc (NASDAQ:LIN) stands against the other European stocks according to hedge funds.
In a move that was largely expected, the European Central Bank (ECB) announced on October 17, to cut interest rates by a quarter point, bringing the deposit rate down to 3.25%. This marks the first consecutive rate cut since 2011 and is a clear indication of a global cutting cycle.
The ECB’s decision is seen as a response to the current economic climate, in which inflation is expected to rise again before eventually declining to target levels. While the headline inflation rate is currently below target, the core rate is higher. The ECB has also stated that it is not committing to a particular rate path, suggesting that future decisions will be made on a case-by-case basis. The rate cut is also part of a broader effort to reduce the ECB’s balance sheet and scale back its pandemic emergency programs. This move is seen as a sign that the ECB is confident in the European economy’s ability to withstand the withdrawal of stimulus measures.
According to a report by Lazard Asset Management, the European economy is showing signs of stalling, but the equity market remains resilient. Despite the European Central Bank (ECB) cutting interest rates and indicating a “declining path,” this could serve as a tailwind for European equity prices over the near term.
The report notes that the ECB’s rate cuts, combined with the Federal Reserve’s cut in US interest rates, could provide a supportive environment for European equities.
European equities have remained resilient despite the economic slowdown, avoiding any significant declines. This is unusual, as typically, stock markets perform poorly when faced with flagging economic activity and interest rate cuts. However, the ECB’s rate cuts have not been the only unusual aspect of the current market environment.
The report suggests that the falling cost of capital could provide support for certain cyclical parts of the market, such as chemicals and commodity producers, where valuations have become overly discounted. Additionally, the report notes that companies are engaging in more shareholder-friendly behavior, including strategic spin-offs, share buybacks, and healthy dividend payments.
In an interview with CNBC on October 23, Trond Grande, Deputy CEO of Norges Bank Investment Management, shared his insights on the current market trends and the potential impact of the central bank’s monetary policy decisions on the portfolio.
Grande noted that the past quarter has been quite eventful, with significant volatility in July and August, followed by a rate cut by the US Federal Reserve in September.
When asked about the potential impact of further rate cuts by central banks, including the Fed, the European Central Bank, and the Bank of England, Grande stated that it depends on how much of this is already priced into the market. He believes that with inflation coming down and unemployment not rising dramatically, it’s likely that central banks are heading for a soft landing. As a result, further rate cuts shouldn’t be a big surprise to the market, and therefore, shouldn’t have a significant impact on the portfolio.
Grande was also asked about his views on the European banking sector, particularly in light of potential mergers and acquisitions. While the European Central Bank’s rate cuts may seem counterintuitive, Grande believes that a flattening yield curve and potentially even a steepening yield curve could be a big tailwind for financials and banks in general. This could be a bullish sign for European banks, despite the ECB’s rate cuts.
The conversation also touched on the tech sector, which has had a phenomenal ride in recent times, driven in part by the hype around AI. Grande cautioned that while these companies are large and have robust earnings, they’re also priced for further growth. To defend their current pricing levels, they need to show economic growth, sales growth, and increasing margins. Grande advised investors to be careful and consider the potential risks in this sector.
As the global economic landscape continues to evolve, the European market’s resilience and potential for growth make it an exciting space to watch.
A bustling industrial facility with a series of chemical filtration systems on display.
To compile our list of the 8 best European stocks to buy according to hedge funds, we used the Finviz and Yahoo stock screeners to find the 25 largest European companies. We then narrowed our choices to 8 stocks according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of hedge fund sentiment, as of the second quarter.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Number of Hedge Fund Investors: 63
Linde plc (NASDAQ:LIN) is a multinational chemical company specializing in industrial gases and engineering, based in Ireland. The company provides a wide array of gases like oxygen, nitrogen, and hydrogen to sectors such as healthcare, manufacturing, and energy. Linde plc (NASDAQ:LIN) has also been at the forefront of the hydrogen economy, developing technologies that support cleaner energy solutions. The company merged with Praxair in 2018, creating one of the largest gas companies in the world.
On October 29, Linde plc (NASDAQ:LIN) announced that it has begun supplying industrial gases to PT Freeport Indonesia, a major mining company and a subsidiary of Freeport-McMoRan Inc. Linde plc (NASDAQ:LIN) has invested $120 million to build and operate a new air separation unit (ASU) at the company’s copper smelter and refining facility in Manyar. The ASU is the largest in Indonesia and Linde plc’s (NASDAQ:LIN) largest in Southeast Asia. The plant will provide oxygen and nitrogen to PT Freeport Indonesia and also supply liquefied industrial gases to other customers in East Java.
Linde plc (NASDAQ:LIN) is also investing approximately $150 million to build, own, and operate an on-site air separation unit (ASU) in Boden, northern Sweden. The plant has an agreement with H2 Green Steel to supply industrial gases for the world’s first large-scale green steel production plant. The ASU will supply oxygen, nitrogen, and argon to H2 Green Steel’s integrated plant, which is expected to reduce carbon emissions by up to 95% compared to traditional steelmaking methods. The ASU will begin operations by 2026 and will serve Linde plc’s (NASDAQ:LIN) existing and future customers in the local merchant market, strengthening its presence in northern Sweden.
One of the key growth drivers for Linde plc (NASDAQ:LIN) is its partnership with leading semiconductor companies, including TSMC and Samsung. The company’s on-site gas supply infrastructure for TSMC’s Phoenix manufacturing facility is expected to contribute to profits in the coming quarters, and Linde plc (NASDAQ:LIN) is likely to benefit from the growing demand for semiconductors.
Overall, LIN ranks 6th on our list of the best European stocks to buy according to hedge funds. While we acknowledge the potential of LIN as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LIN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
