Italian stocks have long been known for their attractively low valuations. Despite facing numerous economic challenges, including poor productivity, high levels of government debt, and an aging workforce, there are signs of potential recovery in certain sectors.
The current gap between Italian stocks and global equities is the widest it has been since 1998, according to data compiled by Reuters. In fact, Italian stocks are now trading at twice the average discount of the past 20 years. This represents a significant opportunity for investors looking to capitalize on undervalued assets.
Comparing price/earnings (P/E) ratios, the iShares FTSE MIB UCITS exchange-traded fund, which tracks Italy’s benchmark index, has a P/E ratio of 12. In comparison, the S&P 500 index has a P/E ratio of 20, while the iShares MSCI World ETF has a P/E ratio of 19. This discrepancy suggests that Italian stocks are trading at a considerable discount compared to their global counterparts.
While Italy’s economy experienced stagnation in the third quarter, contracting by 0.4% in the second quarter, the International Monetary Fund predicts a modest growth rate of 0.7% for this year and next. Although this is lower than the growth expectations for the United States, which forecast growth rates of 2.1% and 1.5% for 2023 and 2024 respectively, there is still room for optimism in Italy.
Despite the challenges faced by Italy’s first female prime minister, Giorgia Meloni, since taking office in October 2022, there are promising signs. Rising interest rates set by the European Central Bank have increased the cost of servicing Italy’s debt, which is the second highest in the euro area after Greece, standing at over 140% of GDP. However, recent adjustments to a windfall tax on banks, following criticism, demonstrate the government’s willingness to address concerns.
Nevertheless, Italy remains home to several high-performing companies, many of which are currently undervalued. For instance, UniCredit, one of the country’s largest banks, boasts a P/E ratio of just 5.6, presenting a 10% discount to its peers. UniCredit’s Milan-traded shares have already seen significant gains this year, rising by over 85%. Moreover, the company has received 15 Buy ratings and two Holds among surveyed analysts, according to FactSet.
In conclusion, Italian stocks offer a unique investment opportunity given their historically low valuations. While the country faces economic challenges, there are companies with strong potential for growth and value appreciation. Investors should consider exploring the Italian market and capitalizing on these hidden opportunities.
Italian Companies with Potential
UniCredit, once a perennial underperformer, has experienced a remarkable turnaround in just two years, according to Johann Scholz, an analyst at Morningstar. The bank has become one of the most profitable in Europe, generating mid-double digit returns. Despite being highly capitalized, UniCredit’s performance is exceptional.
Eni: An Undervalued Gem
Eni, an oil company, is often overlooked despite its potential. Its P/E ratio of 6 is in line with its peers, but its larger European rivals such as BP and Shell are more highly valued. Surprisingly, Eni’s shares have risen by 12% this year, despite a decrease in crude-oil prices. If oil prices continue to rise due to output restrictions from Russia and Saudi Arabia, Eni could be a promising investment.
Stellantis: A Sleeper Auto Giant
Stellantis, the auto giant that owns multiple well-known brands including Chrysler, Dodge, Fiat, Jeep, Alfa Romeo, and Maserati, has a shockingly low P/E ratio of 3.4. In comparison, Ford Motor stands at 6.7 and General Motors at 4.2. However, Stellantis’ shares have spiked by 43% this year and have received positive ratings on FactSet. This sleeper stock is worth keeping an eye on.
Ferrari: Luxury on Wheels
Ferrari, a stock pick from earlier this year, is not your typical car company. With a valuation of 44, it appears more like a luxury brand than an automaker. Despite this, the stock has experienced an impressive 70% gain so far in 2021. Ferrari’s high-profit margins and potential for rapid growth make it an attractive investment option. Additionally, the company’s upcoming venture into electric vehicles could further drive its success.
In conclusion, although Italy’s stock market may be facing challenges, there are still hidden gems worth exploring. UniCredit, Eni, Stellantis, and Ferrari all show promise for investors seeking profitable opportunities.