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European Equity Market Outlook: Top Stock Picks by Sector

Morningstar analysts select the best prospects among sectors like consumer defensive, energy, financial and healthcare.

Michael Field, CFA 17 January, 2025 | 4:24PM
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Strong price movements in the last quarter of 2024 have thrown around valuations among European stock sectors. Healthcare stocks are now offering decent value, having been fairly valued last quarter.

Meanwhile negative price movements in utilities and consumer defensives have made both sectors even more attractive. Consumer cyclicals remains the cheapest sector in Europe with close to 25% upside from here.

We see opportunities within this sector in everything from homebuilders to luxury goods stocks. US trade policies will undoubtedly have an important role to play in dictating the prospects for many sectors this year. But with risk comes opportunity, and we believe many potentially exposed areas still offer attractive upside potential.

Here are Morningstar’s analysts top sector picks for Q1.

Key Communication Services Stock Picks

  • Infrastrutture Wireless Italiane
  • BT Group

Key Morningstar Metrics for BT Group 

Analyst: Javier Correonero


Javier Correonero, equity analyst at Morningstar, thinks BT, is a promising investment. Its relationship with the UK’s regulator Ofcom has improved signaling reduced regulatory intervention. Openreach, the company BT owns, is also expected to bring in higher free cash flow. Meanwhile, BT will reduce its headcount to ensure cost controls which are paramount in the telecommunications industry.

Key Morningstar Metrics for Infrastrutture Wireless Italiane 

Analyst: Javier Correonero


Infrastrutture Wireless Italiane, the Italian telecoms multi-operator, is backed by Morningstar for the quality of its tower portfolio, as it has the two largest mobile operators in Italy. The company, commonly known as Intwit, has contracts that provide it with best-in-class inflation protection. Morningstar also likes that its dividends are projected to grow in the mid-to-high single digits.

Key Consumer Cyclical Stock Picks

  • Persimmon  
  • Zalando  
  • Kering

The consumer cyclicals sector is currently attractively valued.

Key Morningstar Metrics for Persimmon

Analyst: Grant Slade, CFA


Grant Slade, senior equity analyst at Morningstar, backs UK housebuilder Persimmon, arguing that the UK housing market is in the early stages of a cyclical recovery. We looked at the prospect for UK housing and mortgages in two recent articles.

Key Morningstar Metrics for Zalando SE 

Analyst: Jelena Sokolova, CFA


German apparel retail supplier is benefiting from its strong balance sheet to weather the sector downturn.

Key Morningstar Metrics for Kering 

Analyst: Jelena Sokolova, CFA


Gucci owner Kering was one of the luxury goods names hit by weak Chinese consumer sentiment last year. However, Kering is a top stock pick because it has a significant presence in leather goods, its flagship brand Gucci is strong globally, and it owns smaller brands in the business with the potential to expand.

Key Consumer Defensive Stock Picks

  • Pernod Ricard
  • British American Tobacco
  • Reckitt Benckiser

Consumers have shown they are much more selective in what they are purchasing which has created a tough landscape for larger brands going into 2025.

Key Morningstar Metrics For Pernod Ricard 

Analyst: Verushka Shetty


Verushka Shetty, equity analyst at Morningstar, backs the business for its extensive portfolio and strong innovation pipeline, priming it to dominate growing markets like India. Its products also fall into an affordable luxury category meaning it should benefit from long-term demand growth thanks to premiumization.

Key Morningstar Metrics For British American Tobacco 

Analyst: Kristoffer Inton


BATS has invested in several next-generation products that can deliver nicotine with reduced risk, as global cigarette consumption is declining.

Kristoffer Inton, equity analyst at Morningstar, sees this strategy as leading to the cigarette behemoth becoming a “jack of all trades, master of none.” However, despite the challenges in its next-generation portfolio, Inton is confident BAT will remain profitable, as it holds several cigarette brands with high market shares, particularly in the US.

Key Morningstar Metrics for Reckitt Benckiser Group 

Analyst: Diana Radu, CFA


Reckitt Benckiser’s portfolio is well-positioned to benefit from secular growth drivers across consumer health and hygiene. The company’s acquisition of Mead Johnson has allowed Reckitt to expand into infant nutrition – a sector with strong pricing power. In comparison, with some of its competitors, the brand has no real exposure to laundry care, which Morningstar feels explains its higher operating margin of low 20s compared with high teens for its peers.

Key Energy Sector Stock Picks

  • Shell
  • BP

Key Morningstar Metrics for Shell 

Analyst: Allen Good, CFA


Backers of Shell believe the business will benefit from a rise in demand for gas around the world as LNG becomes much more important over the next decade. Shell’s new CEO has also slowed down its green transition strategy and refocused the company on capital discipline and returns.

Key Morningstar Metrics For BP 

Analyst: Allen Good, CFA


In Allen Good’s view, BP adapting well to the green energy transition. It is moving away from investments in oil which could better position it for success than its peers over the next decade. However, the company will keep its hydrocarbon production at current levels. This decision will ensure BP continues its leverage to commodity prices which will strengthen cash flow for shareholders.

Key Financial Services Stock Picks

  • BNP Paribas
  • Prudential UK
  • Adyen  

Morningstar analysts expect central banks to continue to cut interest rates this year. Higher interest rates have enhanced European banks' profitability, but the upcoming decline in rates is not expected to dent banks' success in 2025.

Key Morningstar Metrics For BNP Paribas

Analyst: Johann Scholtz, CFA


BNP Paribas BNP has reported consistent earnings over the past decade, whilst its peers have experienced earnings volatility. As we enter a return to normal monetary policy in the Eurozone, Morningstar expects a structural increase in BNP Paribas’ profitability. Therefore, the French bank is viewed as a less risky investment opportunity because of its stable track record.

Key Morningstar Metrics For Prudential UK 

Analyst: Henry Heathfield, CFA


Prudential UK has divested from its UK, European, and North American operations. It is now a life and health insurer fully focused on Asia and Africa, with one of the region’s largest asset management businesses. For Morningstar, Prudential’s business interests in Hong Kong and Singapore show that it has begun to move away from its bread and butter of catering to the middle classes to build a growing network of high-net-worth individuals.

Key Morningstar Metrics For Adyen 

Analyst: Niklas Kammer, CFA


Niklas Kammer, equity analyst at Morningstar, considers the Dutch payment company to be an investment that provides exposure to the same attractive growth fundamentals that global tech giants enjoy. Also, the business does not have high capital requirements, it is profitable and is a high cash generator.

Key Healthcare Stock Picks

  • Bayer
  • GSK  
  • Roche   

Key Morningstar Metrics For Bayer 

Analyst: Jay Lee


Morningstar analysts believe Bayer has a narrow economic moat because of the competitive advantages of the healthcare group. Bayer runs a crop science and consumer healthcare business which differs from its prescription drug offering.

In the healthcare division, Bayer’s strong lineup of recently launched drugs and solid exposure to biologics support steady long-term cash flows. The company also holds leading brands Aspirin and Aleve.

Bayer’s crop science segment includes crop protection products such as pesticides, and the fast-growing plant and seed biotechnology business.

Key Morningstar Metrics For GSK

Analyst: Jay Lee


Jay Lee, senior equity analyst at Morningstar, is backing undervalued GSK because of its next-generation respiratory and HIV drugs, which Lee expects to have strong growth over the next three years. Also, the firm’s respiratory syncytial virus vaccine Arexvy should support long-term growth because of the efficacy of the drug and limited competition.

Key Morningstar Metrics For Roche 

Analyst: Karen Andersen, CFA


Karen Andersen, director of equity research at Morningstar, believes that Roche’s ROG drug portfolio and industry-leading diagnostics create maintainable competitive advantages for the company.

Andersen also points to its culture of collaboration with its US arm Green Tech which has boosted research and development productivity, as well as personalized medicine offerings that take advantage of Roche’s diagnostic expertise.

Key Industrials Stock Picks

  • Rentokil Initial
  • Melrose Industries
  • Renault  

Key Morningstar Metrics For Rentokil Initial

Analyst: Grant Slade, CFA


The UK-based pest-control business, Rentokil, is well positioned, according to Morningstar, to benefit from fast-growing pest-control demand in Asia. The stock is expected to grow from the gradual adoption of its digital-pest control offering, and from its ongoing M&A program, which has seen the business complete over 200 acquisitions since 2015.

Key Morningstar Metrics for Melrose Industries

Analyst: Loredana Muharremi, CFA


Aerospace business Melrose Industries supplies 90% of the in-service global engines fleet. The business focuses on narrow-body aircraft, and through its acquired business GKN Aerospace, it is also primed to capitalize on long-term structural industry growth. Its service business should also grow as 45% of CFM56 and 30% of V2500 engines are due for their first maintenance work over the next five years.

Key Morningstar Metrics for Renault

Analyst: Rella Suskin, CFA


No-moats Nissan and Honda have announced they are in talks to possibly merge with Renault. Rella Suskin, equity analyst at Morningstar, views the merger as a positive for Renault. A merged entity would benefit from greater scale. Renault has successfully streamlined its cost base at lightning speed over the last three years. These learnings could be applied to a merged Nissan-Honda company.

Key Utilities Stock Picks

  • SSE   
  • Veolia Environnement  
  • E.ON

Key Morningstar Metrics For SSE

Analyst: Tancrede Fulop, CFA


Tancrede Fulop believes that UK utility SSE is well placed to benefit from the green transition accelerated by the election of the Labour government in Britain. In comparison to other Western European countries, the UK has a favorable regulatory regime which is a positive landscape for SSE.

Key Morningstar Metrics for Veolia Environnement 

Analyst: Tancrede Fulop, CFA


Treatment and distribution of water accounts for about 40% of Veolia’s turnover. The water distribution activity is not cyclical and is indexed to inflation. Also, water technologies make up 25% of the water division. According to Fulop, Veolia exhibits an economic moat thanks to switching costs as the business has “razor-and-blade” features driving highly recurring revenue.

Key Morningstar Metrics for E.ON 

Analyst: Tancrede Fulop, CFA


E.ON is backed by Fulop because the company is absorbing additional investment opportunities due to the need to connect a growing amount of renewable capacity to the grid. The business is exposed to rising interest rates due to its exposure to pensions and the nuclear provisions it bears, and the network’s revenue is indexed to inflation.


The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.

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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Michael Field, CFA  is Morningstar's European Equity Strategist

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