The best European companies to invest in now

However, the best companies are not always the best stocks, because of course the company’s share price is also important. That’s why we focus here on the 10 companies on the list that are currently the most undervalued in euros, according to Morningstar’s price/fair value estimate metric.

10 Undervalued Quality Stocks for Q4

The 10 most undervalued stocks in the list of the best European companies for your portfolio (as of October 4, 2024, all values ​​in euros) are:

• Edenred EDEN
• Elekta EKTA B
• Rentokil Initial RTO
• Melrose Industries MRO
• GSK GSK
• British American Tobacco BATS
• Roche PLEASE
• Reckitt Benckiser RKT
• Rheinmetall RHM
• Pernod Ricard PER

Edenred EDEN

• Analyst: Benjamin Slupecki, CFA
• Price/Fair Value: 0.45
• Morningstar Uncertainty Rating: Average
• Capital allocation rating: Standard
• Industry: Credit services

Endenred tops the list of undervalued stocks. Edenred is the world’s leading provider of prepaid corporate services, its core business being employee services such as meal vouchers. “We believe the fact that Edenred is successfully rolling out its employee benefits programs in new geographies is a strong indicator that the company can continue to do so,” said Morningstar equity analyst Benjamin Slupecki. “We also view management’s strategy to diversify into other areas such as expense management to be largely positive given the corresponding attractive margins and larger market potential in these segments.”

Elekta EKTA B

• Analyst: Alex Morozov, CFA
• Price/Fair Value: 0.55
• Morningstar Uncertainty Rating: Medium
• Capital allocation rating: Standard
• Industry: Medical devices

Sweden-based Elekta develops, manufactures and markets treatment planning systems for neurosurgery and radiotherapy, including stereotactic radiosurgery and brachytherapy. The company has installed more than 7,000 linear accelerators, Gamma Knife and Unity platforms, and brachytherapy facilities. The company’s sales are evenly distributed across its various regions, with the Americas accounting for 31%, Europe, the Middle East and Africa accounting for 35%, and Asia Pacific accounting for the remainder.

Initial Rentokil RTO

• Analyst: Grant Slade, CFA
• Price/Fair Value: 0.58
• Morningstar Uncertainty Rating: Medium
• Capital allocation rating: Exemplary
• Industry: Specialized business services

Investors sent Rentokil Initial shares sharply lower after the company’s September 2024 update, which included a downgraded outlook for its North American pest control business. It appears that Rentokil’s recent incremental investments in sales and marketing resources have yet to fully materialize as the flow of new leads fell short of expectations, reducing organic growth in the first two months of the second half of the year 2024. “Excluding North America Pest Control, Rentokil’s global pest control and sanitation businesses continue to perform well,” notes analyst Grant Slade.

Melrose Industries MRO

• Analyst: Loredana Muharremi, CFA
• Price/Fair Value: 0.62
• Morningstar Uncertainty Rating: Medium
• Capital allocation rating: Standard
• Industry: Specialized industrial equipment

Melrose Industries is a UK company that manufactures engines and structural products for all major OEMs in the commercial and military aerospace industries. The company generates approximately 75% of its sales in the commercial aerospace industry and the remainder in the military aerospace industry.

GSK GSK

• Analyst: Damien Conover, CFA
• Price/Fair Value: 0.66
• Morningstar Uncertainty Rating: Medium
• Capital allocation rating: Standard
• Industry: Drug Manufacturers – General

GSK is one of the largest pharmaceutical companies by sales. It is active in a number of therapeutic areas, including respiratory disease, cancer, antivirals and vaccines. GSK uses joint ventures to achieve additional economies of scale in certain markets such as HIV. “We continue to see the stock as undervalued as the market doesn’t fully appreciate GSK’s growth potential and is too concerned about the Zantac litigation, which appears manageable,” said Morningstar analyst Alex Morozov.

British American Tobacco BATS

• Analyst: Kristoffer Inton
• Price/Fair Value: 0.69
• Morningstar Uncertainty Rating: Medium
• Capital allocation rating: Standard
• Industry: Tobacco

British American Tobacco is the world’s second largest tobacco company by sales, selling cigarettes in over 180 countries. However, with global cigarette consumption declining at a rate of around 5% annually, BAT has invested in more state-of-the-art products that can deliver nicotine with less risk. This strategy makes sense, but we think the company is spreading itself too thin. This means that she is involved in everything, but does nothing properly, according to Kristoffer Inton.

Roche PLEASE

• Analyst: Karen Andersen, CFA
• Price/Fair Value: 0.69
• Morningstar Uncertainty Rating: Low
• Capital allocation rating: Exemplary
• Industry: Drug Manufacturers – General

Swiss pharmaceutical company Roche is also significantly undervalued. The company’s best-selling pharmaceuticals include a range of cancer treatments from its acquired partner Genentech. The diagnostics business was strengthened through the acquisition of Ventana in 2008. Oncology products account for 50% of pharmaceutical sales, and centralized and point-of-care diagnostics account for more than half of diagnostic sales.

Reckitt Benckiser Group RKT

• Analyst: Diana Radu, CFA
• Price/Fair Value: 0.7
• Morningstar Uncertainty Rating: Medium
• Capital allocation rating: Standard
• Industry: Household and personal products

Reckitt Benckiser was established in 1999 by the merger of the British company Reckitt & Colman and the Dutch company Benckiser. The company, which was recently renamed Reckitt, markets a portfolio that includes a variety of household and health brands, including Lysol, Finish, Durex and Mucinex, many of which are number one or two in their categories worldwide.

Rheinmetall RHM

• Analyst: Loredana Muharremi, CFA
• Price/Fair Value: 0.71
• Morningstar Uncertainty Rating: Medium
• Capital allocation rating: Standard
• Industry: Aerospace & Defense

Rheinmetall is a group that is active in various markets with technologically leading products and services. The main sales focus is on the security and mobility technology segments. The vehicle systems, weapons and ammunition and electronic solutions divisions are among the leading suppliers of innovative products for the German and international armed forces in the defense and security industry. The core competence of the Sensors & Actuators and Materials & Trade divisions is to reduce emissions, pollutants and fuel consumption.

Pernod Ricard PER

• Analyst: None
• Price/Quantitative fair value: 0.74
• Morningstar Quantitative Uncertainty Rating: Low
• Capital allocation rating: None
• Industry: Beverages – Wineries and Distilleries

Pernod Ricard is the world’s second-largest spirits company by volume, after Diageo. Its main markets are Europe, the United States and Asia. Pernod’s main spirits brands include Absolut Vodka, Beefeater Gin, Chivas Regal and The Glenlivet Scotch Whisky, Jameson Irish Whisky, Malibu Rum and Martell Cognac. The company’s strategic wine portfolio, which accounted for approximately 4% of sales under the group’s focus brands in fiscal 2023, includes Jacob’s Creek, Brancott Estate, Campo Viejo, Mumm and Perrier-Jouet.

Companies not formally covered by a Morningstar analyst have quantitative ratings. These companies are statistically modeled against companies that are covered by analysts, allowing our models to calculate a quantitative level, fair value and uncertainty assessment.