The 10 Best European Stocks for 2022 and Beyond
A recent pullback in the global equities market has opened the door for investors to buy some of the top dividend-paying European stocks at a discount.
European stocks, like their U.S. counterparts, posted impressive returns in 2021. For the entire year, the Stoxx Europe 600 index of large-cap eurozone stocks gained 13% – much less than the 27% price return for the S&P 500 Index, but still a better-than-average performance.
Despite this, European stocks enter 2022 as a beloved asset class among Wall Street strategists, who say the region is a hotbed of value-priced opportunity.
As of the start of the year, the Stoxx Europe 600 stocks were trading at 17.4 times projected earnings and boasting a 3.3% dividend yield. This makes them look bargain-priced when compared to S&P 500 stocks, which trade at a forward price-to-earnings (P/E) multiple above 21 and collectively yield just 1.3%.
It’s true: Europe is facing several of the same potential headwinds U.S. businesses are: elevated inflation, supply-chain woes and the impact of the omicron variant of COVID-19. But there are glimmers of hope, especially for the continent's value stocks, which BofA Securities strategist Sebastian Raedler believes will outperform growth by roughly 8% over the coming months.
With this in mind, here are 10 of the best European stocks to buy for 2022 and beyond. While value is certainly front and center, this group includes some growth plays as well. What’s more, each stock provides a healthy dividend yield that can help investors ride out any short-term turbulence; indeed, several names featured here are members of the European Dividend Aristocrats.
Data is as of Jan. 18. Dividend yields represent the trailing 12-month yield, which is a standard measure for equity funds. Dividends on some international stocks may be taxed at a higher rate; however, the IRS offers a foreign tax credit that investors can use to offset taxes collected by foreign governments.
- Market value: $345.4 billion
- Dividend yield: 2.4%
Swiss pharmaceutical giant Roche Holding (RHHBY, $50.02) owns a market-leading oncology franchise built around blockbuster drugs like MabThera, Herceptin, Avastin and Perjeta.
The company acquired cutting-edge research capabilities by acquiring Genentech and Ventana roughly 13 years ago. The benefits of these purchases are reflected in RHHBY's current drug portfolio, which has grown from 10 blockbuster drugs just four years ago to 16 today, with another 24 potential blockbusters in late-stage development.
Oncology drugs represent roughly 50% of Roche's business, but the company is also building impressive franchises in immunology, neuroscience and hemophilia. Newer medicines contribute approximately 50% of pharmaceutical sales, driven by strong demand for Perjeta, which has quickly grown to be Roche's largest oncology drug.
Roche has also emerged as a significant player in COVID with drugs like tocilizumab, which has been cleared by the European Medicines Agency and granted Emergency Use Authorization from the U.S. Food and Drug Administration (FDA) for the treatment of severe COVID. There's also REGEN-COV, a COVID antibody cocktail co-developed with Regeneron Pharmaceuticals (REGN), as well as its new test for detecting the omicron variant.
The company's total sales grew 8% year-over-year in the first nine months of 2021, fueled by 39% diagnostic division revenue gains. Roche increased its full-year 2021 guidance to mid-single digit sales and earnings growth and said it expects to boost its dividend. Consensus analyst estimates target $2.83 in earnings per share (EPS) for fiscal 2021, rising to $3.07 next year and more than covering the $1.22 per share annual dividend.
Roche ADRs (American depositary receipts) have paid dividends since 2001 and have steadily raised the annual payout since 2018. The last dividend increase was 7% in 2021.
- Market value: $222.6 billion
- Dividend yield: 1.5%
Novo Nordisk (NVO, $97.29) holds a market-leading 29.9% share of the diabetes care market with its Ozempic and Rybelsus products. It is also expanding market share in obesity care with its prescription weight-loss drug Wegovy, a once-weekly injection recently launched in the U.S. In addition, NVO holds a 35.5% global market share in human growth disorder drugs and is introducing new treatments for rare blood disorders.
New drugs should continue to build out the company's portfolio. Novo Nordisk has Phase III drug trials underway across all of its therapeutic areas and initiated two new Phase III trials during 2021 in obesity and cardiovascular disease.
Growth will also come from acquisitions. Novo Nordisk is paying $3.3 billion to acquire Dicerna Pharmaceuticals, which is developing RNAi (ribonucleic acid interference) drugs for treating liver diseases and other metabolic disorders. The two companies have been research partners since 2019 on multiple drug candidates.
Novo Nordisk's revenue rose 13% year-over-year during the first nine months of 2021, fueled by market share gains in diabetes care and 49% growth in obesity care sales. The company recently upped its full-year 2021 guidance, now expecting sales and profit growth in the 12%-15% range and free cash flow of DKK 44-49 billion (approximately $7 billion at the midpoint).
Longer term, the company targets 6%-10% annual global sales growth, which will come from growing its diabetes care market share, doubling its obesity care sales and establishing a footprint in cardiovascular, NASH (non-alcoholic steatohepatitis) and Alzheimer's disease.
Novo Nordisk is one of the best European stocks in terms of paying dividends too. NVO boasts a 39-year history of paying shareholders, averaging a 14.6% dividend growth rate over the last 10 years. Most recently, the European Dividend Aristocrat increased its payout by 13% in 2021. NVO pays its dividend on a semi-annual basis.
- Market value: $288.4 billion
- Dividend yield: 0.6%
Netherlands-based ASML Holding (ASML, $698.82) develops and manufactures photolithography systems that are used by computer chipmakers to mass-produce etchings on silicon.
Demand for computer chips is soaring and ASML's customers are aggressively boosting capacity and purchasing ASML equipment to meet demand. From revenues of €14 billion ($15.8 billion) in 2020, ASML sees opportunities to reach €24-€30 billion ($27-$34 billion) in sales by 2025 and generate 11% yearly growth through 2030.
The company is the only manufacturer of leading-edge extreme ultraviolet (EUV) lithography machines, which it supplies to Samsung, Taiwan Semiconductor (TSM) and Intel (INTC). Demand for these machines, which enable more precise, efficient production of small semiconductor chips, is forecast to see a 15% compound annual growth rate (CAGR) through 2026.
ASML ended the fiscal 2021 with total revenues of €18.6 billion ($21.1 billion) representing 33% year-over-year growth. For fiscal 2022, the company is guiding for full-year sales growth of around 20%.
The firm has increased dividends every year since 2012 and grown payments nearly 27% annually over five years, while holding payout low at 26%. In 2021, ASML doubled its dividend, which is paid semi-annually.
Wall Street analysts certainly think ASML is one of the best European stocks for 2022. CFRA Research analyst Jun Zhang Tan has a Strong Buy rating on the name. In addition to underlying demand remaining strong in both the logic and memory segments, the company's solid backlog points to revenue visibility through 2023, the analyst writes.
Elsewhere, UBS named ASML as one of 30 disruptor stocks benefiting from 5G rollout. The research firm likes ASML's dominant market share in lithography equipment and its significant pricing power advantage.
- Market value: $361.3 billion
- Dividend yield: 2.3%
Nestle (NSRGY, $131.35) has been one of the best European stocks for years. The global food and beverage giant owns iconic brands such as Gerber, Nesquik, Toll House, Lean Cuisine, Stouffers and dozens of others. This 150-year-old company markets over 2,000 brands worldwide, has sales in 186 countries and generated 2020 sales exceeding $90 billion.
The company generates the majority of its sales from powdered and liquid beverages, pet care, nutrition products, prepared dishes and milk products and ice cream. During the first nine months of 2021, Nestle's organic sales grew 7.6%, due in part to 6% internal growth and a 1.6% increase in pricing. The company is guiding for full-year organic sales growth of 6%-7%, a 17.5% operating profit and increasing EPS.
NSRGY also drives growth by actively managing its brand portfolio. During the first nine months of 2021, Nestle acquired core brands from the Bountiful Company that include Nature's Bounty, Osteo Bi-Flex and Puritans Pride. This deal establishes Nestle as a market leader in mass retail vitamins and supplements.
The company is also building its presence in the premium water and hydration segment with its recent purchases of U.S.-based Essentia Water and Nuun. It is also expanding the reach of its Starbucks coffee and tea business via new collaborations in Asia and Latin America.
In December, Nestle agreed to sell part of its stake in L'Oreal back to that company for $10 billion (NSRGY still owns 20.1% of the French cosmetics firm). The proceeds from the sale will be used for share repurchases and to invest in Nestle's food, beverage and nutritional health businesses.
With an ultra-low beta of 0.5, Nestle is one of the safest, least volatile stocks available. As an added bonus: The company has paid an annual dividend for 29 years and has increased its dividend for the last four years. Annual growth over three years has exceeded 7% and payout at 62% appears moderate given the company's robust cash and free cash flow.
Commenting on the company in October, Kepler Cheuvreux analyst Jon Cox said Nestle "knocked it out of the park" with its September quarter performance. He likes the company's strong brands, which he says enable price increases that keep pace with inflation.
- Market value: $33.0 billion
- Dividend yield: 0.8%
London-based Ashtead Group (ASHTY, $288.00) operates a global equipment rental business consisting of national networks in the U.S., the U.K. and Canada under the Sunbelt Rentals brand. The company rents a wide variety of construction and industrial equipment. Its North American franchise is the second largest equipment renter in that market and it owns more than 900 stores across the U.S. and Canada. The company's U.K. franchise has 186 stores and is the largest equipment rental business in that market.
Following a lackluster fiscal 2021 performance due to pandemic-related shutdowns, Ashtead Group has rebounded strongly this year (ASHTY's fiscal year begins in May). Rental revenues rose 20% year-over-year and EPS increased 38% in the first half of fiscal 2022.
The company plans to capitalize on a U.S. construction market boom by expanding its North American franchise. Ashtead Group invested $1.2 billion in its business in the first six months of its fiscal year, added 58 new North American locations and planned another $320 million in bolt-on acquisitions in its third quarter.
The company also raised its full-year 2022 guidance for revenue growth from 13%-16% to 18%-20% and also increased its interim dividend by 28%. A healthy balance sheet and leverage at the low end of its 1.5 times EBITDA (earnings before interest, taxes, depreciation and amortization) targeted range provide ample flexibility for more new stores and dividend increases.
Ashtead Group has paid a consistently rising dividend since 2014. Payments are made semi-annually.
Analysts think ASTHY is one of the best European stocks in terms of growth potential too. In addition to a consensus estimate of Buy at S&P Global Market Intelligence, the Wall Street pros tracking the stock expect the company to generate average annual earnings per share growth of 22.8% over the next three to five years.
- Market value: $73.9 billion
- Dividend yield: 2.4%
Switzerland-based ABB (ABB, $37.03) is a global technology developer with operations in electrification, robotics, automation and motion. The company is a market leader in the electric vehicle (EV) charging space and recently introduced the world's fastest EV charger. The new charger is also the only product on the market able to charge four vehicles simultaneously. Addressing high-growth markets has helped ABB deliver 34% average annual EPS gain over the past three years.
Orders surged 29% year-over-year in the most recently reported quarter, but ABB's revenue growth was limited to 7% because of supply-chain constraints. Thanks to reduced corporate costs, the company's operating profit increased 35% and free cash flow more than doubled to $1.1 billion. For full-year 2021, ABB is guiding for 6%-8% revenue growth amid a continued tight supply chain.
What makes ABB one of the best European stocks is that its leverage to major macro-trends like automation, robotics and electrification has the firm well-positioned for accelerated long-term growth.
In addition, recent acquisitions such as ASTI Mobile Robotics Group solidify its market leadership in high growth niches. ASTI is the market leader in the manufacturing of autonomous mobile robotics (AMR), which is experiencing strong demand due to use across a wide variety of industrial applications. The acquired business has been generating 30% annual growth since 2015 and targets $50 million of revenues in fiscal 2021.
Meanwhile, ABB is selling its low-tech mechanical power transmission business and expects to book a $2.2 billion pre-tax gain on its sale.
At a December investor event, ABB raised its 2021 sales and profit targets. The company also announced plans to spin-off its electric vehicle charging business in an initial public offering (IPO) sometime in the first half of 2022.
The company has a 15-year track record of paying dividends. The annual payout on the ADR shares rose 13% in 2021 to 87 cents per share.
- Market value: $39.6 billion
- Dividend yield: 1.2%
Ireland's Experian (EXPGY, $41.67) is a global data analytics company that collects credit information on more than 1.3 billion consumers. Banks and other lenders use this data to assess credit risk, improve lending decisions and better target customers. Consumers are also increasingly using Experian data to protect against fraud and identity theft and gain access to financial services.
Experian generates 65% of its revenues in North America, mainly from business customers in the financial services, direct-to-consumer and healthcare sectors.
A market leader in credit-related data, Experian is roughly 30% bigger than the next largest competitor – Equifax (EFX) and nearly twice the size of the TransUnion (TRU), the #3 competitor. EXPGY estimates its U.S. market opportunity at $130 billion and growing. And thanks to the company's highly scalable business model, Experian is able to grow revenues with very low incremental costs.
New products like Experian Boost and Experian Lift are helping consumers improve credit scores. As a result of these new products, Experian's sales grew 23% in the first half of fiscal 2022, while earnings per share improved 29%. Experian is guiding for 11%-13% organic revenue growth, 15%-17% total revenue gains and strongly accretive EBIT (earnings before interest and taxes) for full-year 2022.
The company has an A credit rating from Standard & Poor's and produced a better than 100% cash conversion rate during fiscal 2021.
Experian is one of the best European stocks when it comes to dividends, paying them out for 12 years straight. While dividends haven't increased every year, consensus analyst estimates forecast nearly 15% dividend growth this year and 11% growth next year. Dividends are paid semi-annually.
- Market value: $130.5 billion
- Dividend yield: 3.7%
French pharmaceutical giant Sanofi (SNY, $52.08) is best-known for its diabetes drug Lantus and cancer drugs Eloxatin and Taxorete. These drugs are coming off-patent and the company has recently begun refocusing efforts on developing more blockbusters like Dupixent. This eczema drug produces around $4 billion of annual sales and is projected to reach peak sales of $12 billion.
New drugs will come from in-house research and development (R&D), partnerships and acquisitions. The company is teamed up with AstraZeneca (AZN) on Nirsevimab, a vaccine that prevents respiratory viruses in infants, and with Regeneron on cancer drug Libtayo. Additionally, Sanofi's Sarclisa is the first FDA-approved cancer drug developed in-house by the pharmaceutical firm since Jevtana, which launched in 2010.
Sanofi recently spent $1.1 billion to acquire Kymab, which owns a new eczema treatment in late-stage clinical trials. SNY also raised capital by spinning off its active pharmaceutical ingredient manufacturing operations last year.
Additional growth drivers come from Sanofi's rare blood disorder drug Cablivi, diabetes drug Soliqu and lucrative vaccine franchise, fueled by strong sales of its influenza and meningitis vaccines. In early December, the company acquired an acne vaccine and licensed new mRNA vaccine technologies from Baidu (BIDU).
Robust sales of Dupixent and flu vaccines helped Sanofi boost EPS by 12% year-over-year during the first nine months of 2021 and full-year 2021 earnings guidance targets 14% growth on a per-share basis.
SNY earns Buy or Strong Buy ratings from five of the six Wall Street analysts following the stock. One thing that makes SNY stand out on this list of best European stocks is its valuation, with the shares trading at a low 13.8 times forward earnings – a 34% discount to its pharmaceutical industry peers.
Sanofi has paid a steadily rising dividend since 2008, most recently hiking its annual payout by 12% in early 2021.
- Market value: $11.5 billion
- Dividend yield: 2.2%
Growth in the cloud is what makes U.K.-based Sage Group (SGPYY, $44.15) one of the best European stocks going forward. The company provides cloud-based accounting, human resources and payroll software and solutions to small and medium-sized businesses worldwide.
Software subscriptions make up the majority of the company's sales and customer renewal rates range around 99%. As a result, Sage Group generates attractive 92% recurring revenues, which grew 8% last year.
Another benefit of high recurring revenues is robust free cash flow. Sage Group has a 126% cash conversion rate and an investment-grade balance sheet.
The company's total addressable market is estimated at 67 million businesses and $38 billion in revenues. On an annual basis, SGPYY's overall market is growing 6% and the cloud spend segment is rising 12%.
Sage Group plans to capitalize on cloud spending growth by migrating more of its current customers to Sage Business Cloud and signing new cloud accounts. The company's business cloud revenues rose 19% in fiscal 2021 and recurring revenues rose 5%, but basic EPS declined due to higher investments in sales and marketing.
SGPYY is guiding for 8%-9% recurring revenue growth next year and an uptrend in organic operating margins.
The company has paid a rising dividend since 2015 and makes payments semi-annually.
- Market value: $132.7 billion
- Dividend yield: 4.4%
Consumer staples conglomerate Unilever (UL, $50.04) owns a world-class portfolio of popular beauty and personal care, food and home care brands. Thirteen of its 400 brands generate more than €1.0 billion ($1.1 billion) of annual sales and 81% rank as either #1 or #2 in their markets. Its familiar brands include Dove soap, Hellmann's mayonnaise, Knorr soups and Vaseline, to name just a few.
The company plans to grow by developing its portfolio in higher-growth areas, divesting struggling brands and accelerating its expansion in the U.S., China and India. Unilever recently agreed to sell its global tea business, which includes the Lipton, T2 and TAZO brands, for $5.1 billion. UL also agreed to acquire Onnit, a leading brand in the holistic wellness and lifestyle space for an undisclosed amount.
Unilever's strategic initiatives are helping boost its quarterly results. Sales in Unilever's three priority markets (U.S., China and India) each improved in Q3 compared to the year prior, and higher growth in new businesses, which include Prestige Beauty (deodorant, skincare) and Functional Nutrition (vitamins, health drinks), expanded at double-digit rates.
Analysts see even more growth for Unilever. Consensus estimates forecast earnings of $2.81 per share for fiscal 2021, rising to $3.08 per share in fiscal 2022.
UL shares have had a rough go of it lately. Since their May highs near $61, the stock is down around 18% – pressured by inflation worries and, more recently, news that the company ended M&A talks with U.K. drug manufacturer GlaxoSmithKline (GSK).
However, this recent pullback creates an opportunity to buy one of the best European stocks at a discount. At present, the stock trades at a 18 times forward earnings, which is 15% below its five-year average.
Unilever has a 22-year track record of paying dividends. Annual dividend growth over 10 years has exceeded 5%. Unusual for a European company, Unilever pays quarterly dividends.