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UBS has named a raft of European small and midcap stocks it says are staging a “comeback in the making” this year. Smaller European stocks returned 0.5% in July and August, outperforming the 1.7% contraction logged by large caps in the same period, the Swiss investment bank noted. “We think weakness in smallcaps has been largely related to factors including liquidity concerns, inflation, macro concerns and sector weights,” UBS’ team of analysts detailed in a Sept. 4 note. “One important factor is that assets under management in specialized smallcap funds seem to be stabilizing after a very tough period. Both momentum and value are also supportive for smallcaps.” The bank’s list of small and mid-cap stock picks spans several sectors including pharmaceuticals, logistics, manufacturing and retail. On average, stocks on UBS’ list of small and mid-cap stocks were up 6.6% year-to-date, beating the MSCI European Smallcap Index by 1.2 percentage points, according to the bank. Stock picks Italian cement and ready-mix company Buzzi is among UBS’ top picks, given its year-to-date performance of 53.4%. The analysts have a buy call on the stock at 42 euro ($61.41), representing a 53% upside from its 27.42 euro close on Sept. 5. Braking systems and supplier of rail and commercial vehicle systems Knorr-Bremse Group also made the bank’s list with a year-to-date return of 23.6%. The analysts have a buy call on the stock at a price target 78 euro, giving it a 27.5% upside from its 61.16 euro close on Sept. 5. The bank likes Hugo Boss too, at price target of 69.32 euro, a 28.4% upside from its Sept. 5 close of 69.32 euro. It noted fashion label’s year-to-date return of 28.3%. New on the radar UBS’ list has also undergone a refresh to include three new stocks: Galenica , SIG Group and Talgo. Swiss pharma and logistics company Galenica made the list as its “top-line growth trajectory (excluding Covid-19 tailwinds) improved materially [alongside] increasing annual per pharmacy sales in its network,” the analysts wrote. The bank gave the stock a buy call at a price target of 78 euros amid expectations of a dividend yield of 3.4% next year. This gives it almost 13% upside from its close of 69.10 euros on Sept. 6. The bank is positive on Swiss specialized packaging company SIG Group given expectations of strong demand for its products. It also anticipates good prospects for Spanish train manufacturing and design company Talgo following a rebound in its performance in the second half of 2023. “Margins at 12% remain above the industry level, largely down to maintenance, and [Talgo] expects margins to improve. We believe the current valuation offers good value,” the analysts detail. The bank has buy calls on both SIG Group and Talgo at price targets of 28 euro and 4.80 euro — or 22.8% and 24.1% upside — respectively.
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