The hottest European stocks are rising because of strong profits, not because of a speculative frenzy, according to Adrien Bommelaer, who manages one of the best performing funds from the past year.
His Echiquier Major SRI Growth Europe, which has €1.36 billion ($1.48 billion) in assets, has a heavy weighting in Novo Nordisk A/S, LVMH and ASML Holding NV, which has helped the fund beat 94% of its peer group over the past 12 months, according to data compiled by Bloomberg.
“I don’t think there’s any over-valuation,” he said in an interview. “I certainly don’t see a bubble like back in 2000.”
The difference between the rally now and the dotcom bubble is that today’s stocks are highly profitable, he said. Indeed, Nvidia’s eye-popping sales forecast seems to have momentarily quashed any concerns, triggering a fresh rally for the world’s most valuable chipmaker. The interview was conducted before Nvidia’s results were released.
Still, the heavy dependence of equity benchmarks on a handful of stocks, such like the Magnificent Seven, remains a concern for many investors. Bommelaer said that Nvidia’s valuation is justified by the insatiable demand for artificial intelligence chips and there’s a compelling rationale behind the surge in Europe’s top three stocks.
Novo Nordisk has shown investors the potential of the huge market opened up by its blockbuster weight-loss drug Wegovy, he said. The company is worth about €500 billion and the shares have soared 70% in the past 12 months.
ASML has almost a monopoly on extreme ultraviolet lithography machines, which are key for the most advanced semiconductors, he added. The stock trades with a forward earnings multiple of 46 times earnings per share, more than three times the Stoxx 600 Index.
Luxury companies, such as LVMH, Hermes International and Ferrari NV, have pricing power due to the demand and scarcity of their products, Bommelaer added. More broadly, he said European stocks should do well this year as the economy starts to recover.
This article was provided by Bloomberg News.