UBS has identified stocks at risk of dragging one of Europe’s largest equities indexes lower by 10% by the end of this year. The investment bank said its 410 price target for the Stoxx Europe 600 index is based on forecasts for lower earnings and valuations. “Our index target for 2023 was set in our Outlook in January and we see no reason to change it,” UBS equity strategists, led by Gerry Fowler, wrote in a note to clients on Aug. 18. “The thesis is that in the coming months, earnings may weaken from here and that more correlation and volatility may expand risk premiums for more cyclical stocks.” The Swiss bank predicted that the consensus earnings estimate for 2024 will fall to around 33 index points, down from current expectations of 38 points, as growth proves more resilient than anticipated, but is forecast to start to decline. In addition, it said the consensus estimate of 11.9x for the forward price-to-earnings ratio is “too high” — another reason for stocks to fall. For the overall index to drop 10%, some of the largest companies will need to fall, according to the investment bank. UBS screened for stocks with high volatility, negative earnings revisions already underway, and valuation multiples not yet in the single digits. The above table includes top performers in 2023 so far that may be both overcrowded and expensive, like luxury and semiconductor stocks, according to UBS. Stocks include ASML Holding , LVMH , Siemens , Airbus , and Richemont . The bank’s strategists warned that some companies, in its complete list of 20 stocks, are already down 15% but could decline further on additional downgrades or de-rating if conditions deteriorate. UBS also screened for more defensive, less volatile stocks that score well on its framework. The table below highlights stocks in health care, consumer staples and utilities that may be more resilient. They include AstraZeneca , Novartis , Unilever , Iberdrola , and Relx . — CNBC’s Michael Bloom contributed to this report.
