Mapped: Europe’s Most Undervalued Stocks

We’ve mapped out the European companies that could be a solid buying opportunity 

Sunniva Kolostyak 26 May, 2022 | 10:34AM
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Global markets have been thoroughly humbled this year, and Europe is no exception.

Companies, and particularly those in the technology sector, have seen losses in high double digits, while others are still to make a recovery after being battered by Covid-19. Saying there are companies we consider to be undervalued would be an understatement.

For the first time, we’re making our update on the cheapest and most undervalued stocks in Europe a more visual experience, placing our rated stocks in an interactive map.

We’ve looked at every European country under our coverage to select the three stocks with the highest Morningstar Star Rating (5 stars means undervalued, 1 star means overvalued, three stars is accurately priced). We’ve also looked at the price/fair value ratio: if a stock is trading at a 50% discount to what we consider to be its fair value, its ratio would be 0.50.

It’s no surprise to see quite a few tech names across the map. Five of the 10 cheapest stocks are tech companies, with internet retail companies taking the biggest hit.

The cheapest stock available is currently found in the Netherlands, but with a dual listing in London – it’s Just Eat Takeaway.com (TKWY/JET). It has lost 60% of its value so far this year and has a price/fair value of 0.15 – meaning it’s trading at a spicy 85% discount. But, the company is Morningstar’s preferred choice in the food delivery space based on its upside potential. In the Netherlands, it beats Koninklijke Philips (PHIA) and Universal Music Group (UMG) to become the most undervalued stock.

Cheap Does Not Always Mean Buy

The Morningstar Star Rating can be explained as a tool to measure how attractive a stock is as an investment at present, and is not strictly a buying recommendation.

Our analysts talk of a "margin of safety" for investors taking the leap to buy a stock. Investing in a 1-star stock, which is significantly overvalued, for example, carries more risk because of the chance the share price will fall back. 2020’s outlier Tesla (TSLA) was a 1-star stock last year, but a 40% fall in the share price so far in 2022 has nudged it into 3-star territory.

In a recent video, Morningstar analyst Ioannis Pontikis explained why Just Eat investors may just have to be patient for a little while longer. As its fair value estimate is significantly above its current price, the shares would have to rise more than 500% from their current level to get back to par, for example.

The Tech Tumble

Moving on from Just Eat, the second cheapest company in Europe is currently UK’s Deliveroo (ROO). It has 5 stars, a 2022 return of -57%, and a price/fair value of 0.25%. German counterpart Delivery Hero (DHER) is the fourth cheapest stock available, down 69% and has a price/fair value of 0.31.

Beyond food delivery, UK fast fashion brand ASOS (ASC) and French Worldline (WLN) are also among the 10 cheapest stocks in Europe, showing just how much of a hit technology has taken of late. And to conclude the UK’s top 3 we have Ocado (OCDO) trading in undervalued territory as well. The company is currently seeing increased losses and higher spending on tech and logistics, shaving off the growth it saw during the pandemic.

When we last looked at the most undervalued stocks in the UK, we saw a broadening of the 5-star club from tobacco stocks to food delivery and tech, but also insurance and airlines.

Now, in a broader European context, we see car and auto part manufacturers, industrial machinery and even medical devices struggle too.

Moreover, Belgium’s Anheuser-Busch InBev (ABI) is the most undervalued stock in its region – inflation has hit the brewer, but Morningstar believes its wide economic moat will protect it in the long run.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Sunniva Kolostyak  is data journalist for Morningstar.co.uk