In Europe, as in the U.S., several major stocks have been leading the market, especially early this year, according to Morgan Stanley. The bank said that as of late February, just five stocks accounted for 60% of the year-to-date gains in European stock markets. But the company believes its performance will start to pick up, as history has shown that small-cap stocks typically lead the market rally over the next six months. “As the 'broadening' theme becomes more important, investors will increasingly focus on high-quality small-cap stocks at attractive valuations as a source of alpha,” Morgan Stanley said in an April 3 note. It will be,” he said. The magazine lists three “overlooked” stocks — healthcare software provider CompuGroup, cybersecurity company Exclusive Networks, and WAG Payment Solutions — as undervalued, high-quality stocks with significant upside potential. The bank rates all three stocks as overweight. CompuGroup Morgan Stanley said it considers the stock to be the cheapest among software names and upgraded the stock to Overweight due to its attractive valuation. It also holds leading market positions in several countries, including Germany, France and Austria, the bank added. “CGM benefits from typical characteristics of software business models, such as high customer stickiness despite high switching costs, high recurring revenue (approximately 70%) with high visibility. , the ability to survive annual price increases, healthy profit margins, etc. Operating leverage and price increases, and a healthy [free cash flow] Morgan Stanley gave Compugroup a price target of 37 euros, or a 23% upside. WAG Payment Solutions WAG Payment Solutions' core business is fuel payment cards, but it has since expanded to meet the needs of European countries. The company has grown to become one of the largest and most integrated payments providers, the bank said, according to Morgan Stanley, and the stock is undervalued both in absolute terms and relative to its peers. Morgan Stanley's Exclusive Networks said it is one of the world's largest and fastest growing specialist distributors of cybersecurity products, adding: “We continue to position Exclusive as attractive to European investors. I think it's a great way to do it.” “Unlike other software markets, the challenge in cyber is that there is always a fundamental problem that you are trying to solve,” the bank said. Morgan Stanley says, “The nature of threats is constantly changing, and therefore the products vendors offer, and therefore the vendors themselves, are constantly changing. “This means that there has been an increase in the number of people.” “Exclusive’s ability to attract and expand with best-in-class cybersecurity vendors will enable the company to attract more partners and customers.The bank raises Exclusive’s price target from €24.5 to €26.5, an increase of 15.7%. CNBC's Michael Bloom contributed. report.
