European stocks look cheaper than U.S. stocks now based on P/E ratio and other factors. However U.S. stocks are better for better for growth than European stocks under Trump Presidency, according to Peter Fitzgerald of Aviva Investors quoted in a recent Citywire UK article. He also noted the one important reason on why investors’ perception that European equities are cheap is incorrect. From the article:
European equities aren’t as good a deal as investors believe, according to Peter Fitzgerald of Aviva Investors, who is looking to the US for growth following the election of Donald Trump.
Fitzgerald, global head of multi-asset at Aviva Investors, believes investors are failing to take into account the composition of indices when comparing US and European stocks. ‘There is the common belief that European equities are cheap but what is not taken into account is the composition of the index,’ he said.
‘You need to adjust the composition and factor in the S&P has 20% in technology [companies], which trade on higher multiples but Europe only has 2% in technology but more in financials and commodities. When you compare the adjusted market composition then you see [European equities] no longer look as cheap.’
European valuations have been pushed down by financials in particular, but despite European banks being inexpensive, Fitzgerald said he would rather back US banks which he regarded as more stable.
Source: Where on earth should you invest in the Trump era?, CityWire UK
Some of the sectors that are expected to grow strongly in the next few years are industrials, defense, transportation, infrastructure, healthcare and banking. Already many stocks in these sectors have shot up. Hence investors looking for growth-oriented companies can monitor these sectors and add stocks during pullbacks. Momentum should keep these stocks continue to vault higher in the coming year. A few companies that investors can consider are listed below:
Railroads: Kansas City Southern(KSU), Norfolk Southern Corp(NSC), CSX Corp (CSX), Canadian Pacific Railway Ltd(CP) and Union Pacific Corp (UNP)
Infrastructure, Defense: Caterpillar(CAT), United Technologies Corporation (UTX), The Boeing Company (BA), Martin Marietta Materials, Inc. (MLM)
Disclosure: Long CNI, CSX, UNP
