Back to top

Image: Bigstock

6 European Stocks to Shun on Tapered IMF Outlook

Read MoreHide Full Article

Slowdown in the Euro zone this year is now known to all. The common currency bloc expanded 0.4% sequentially in Q1, after a 0.7% expansion in the previous period. Now, confirming this downing trend, the International Monetary Fund (IMF) haslowered its growth projection for the Euro area in its latest update to its Global Economic Outlook.

The Euro area is now expected to expand 2.2% this year, down 0.2 percentage points from the IMF’s previous forecast, in April. The common-currency bloc will likely expand 1.9% next year, down 0.1 percentage points from April.

Among the Euro zone, the IMF warned that economic growth in Germany, France and Italy – the big three – would be squeezed by 0.3% this year. Italy and France are likely to witness their growth slip even in 2019.

France

The French economy advanced 0.2% sequentially in Q1 after a 0.7% expansion in the previous period. It was the most sluggish pace of expansion since the September quarter of 2016.

The Bank of France reiterated its forecast for French GDP growth for the second quarter at 0.3% and expects a general uptick in business activity for July. However, a stronger euro, a rebound in oil prices and uncertainty about protectionism are likely to curtail the growth momentum.

Economic growth this year may fail to meet the government’s 2% forecast and is likely to remain sluggish in the years after, per Bank of France. Notably, the economy scored a 2% growth rate last year, marking a six-year high.

Italy

The Italian economy also grew 0.3% sequentially in Q1, following an upwardly revised 0.4% expansion in the previous period. The IMF cut its growth forecast for Italy, for both 2018 and 2019. After last year's 1.5% rise, GDP will likely expand this year by 1.2%, three percentage points lower than the IMF’s April forecast.

Next year, growth will likely be 1.0%, one percentage point less than what was predicted in April by the IMF. Increasing political uncertainty and the resultant impact on the financial market led the IMF to lower the forecast. Italy has the highest public debt (132%) to national output in the Euro zone after Greece.

Germany

The German economy expanded seasonally-adjusted 0.3% sequentially after 0.6% growth in the previous period. It also marked the weakest clip of growth since the September quarter of 2016.

The International Monetary Fund trimmed its 2018 forecast for German GDP growth to 2.2% from 2.5% estimated in April thanks to rising protectionism, growing concerns over a hard Brexit and “a reassessment of sovereign risk in the Euro area.” The bank, however, nudged up its 2019 forecast to 2.1% from 2.0%.

Stocks to Stay Away From

Against this backdrop, below we highlight six European stocks, two from each country, that have a Zacks rank #4 (Sell) or 5 (Strong Sell) and may see rough trading in the days to come.

France

Erytech Pharma SA Sponsored ADR (ERYP - Free Report)

The company operates as a biopharmaceutical company with a VGM Score of F.

Sanofi (SNY - Free Report)

This is a global pharmaceutical company with a VGM Score of D.

Italy

Ferrari N.V. (RACE - Free Report)

The company is engaged in designing, manufacturing and selling sports cars.

Telecom Italia S.P.A.

The Telecom Italia Group is engaged principally in the communication sector that operates mainly in Europe, the Mediterranean Basin and South America.

Germany

Deutsche Bank Aktiengesellschaft (DB - Free Report)

It is one of the leading international financial service providers with a VGM Score of F.

Biofrontera AG Sponsored ADR

It is a biopharmaceutical company. Its VGM Score is D.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>