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Investing.com - European quality stocks are tipped to be "well placed" in the current investment cycle, according to analysts at UBS.
In a note to clients, the brokerage recommended investing in these names, arguing that they are "highly profitable businesses, with resilient earnings and strong balance sheets" and are prone to withstand an ongoing bout of elevated stock market volatility, political uncertainty, and slower economic activity.
"We believe this new theme is well suited for investors looking to diversify their portfolios increasingly to the European region, in businesses that we view as well positioned for the future," they argued.
These stocks can also be added at a "reasonable price" after an extended period of underperformance this year, the analysts said. They added that the weakness was driven by trade tensions, as well as signs of increased European defense spending and progress in Ukraine war peace talks which contributed to a stronger euro and boosted smaller, domestic firms.
The strategists flagged that these factors are now "well known, so their ability to surprise further from here is more limited."
"Although quality is not cheap (and generally never is), its P/E valuation premium has fallen from more than 40% at the beginning of 2024, to less than 30% at the end of May 2025; this is now slightly below its 10-year average," the analysts said.
While the lender backed "broad-based" exposure to European quality, it said investors in single stocks should seek out names with "high profitability, resilient earnings, robust balance sheets and/or sustainable competitive advantages."
The UBS analysts’ recommendation replaces a prior preference for small- and mid-cap stocks in the euro zone currency area. The brokerage noted that these stocks have recently logged strong returns, but are now potentially more susceptible to a widespread economic slowdown due to sweeping U.S. tariffs.