UBS has maintained its list of favored names in the European auto space as companies prepare to report first-quarter results, highlighting a pair of manufacturers where the broker sees scope for outperformance even as the wider sector faces uneven conditions.
In its assessment, UBS places particular emphasis on two companies.
Stellantis
UBS identifies Stellantis as one of its key picks based on what it describes as a strengthening turnaround in North America. The broker expects improving volumes and a better product mix in that region to contribute to meaningful margin expansion. UBS views the first quarter as an inflection point for the company, anticipating positive operating income that would signal a recovery from prior weakness.
Looking beyond the quarter, UBS points to continued momentum in North America and the prospect of strategic updates at an upcoming capital markets day as factors that support confidence in a normalization of earnings over the medium term. The broker also notes that current market valuation may not fully capture the potential for margin improvement if operational execution remains on track.
Continental
Continental is highlighted as UBSs other top pick, with the broker drawing attention to the companys resilient pricing power and signs of better operational performance, particularly within its tires division. UBS cites strong price-mix dynamics and Continentals ability to manage input cost pressures as principal positives for the business.
The planned disposal of the ContiTech division is identified by UBS as a potential catalyst that could unlock value. Combined with solid cash flow generation and strategic actions the company has underway, the broker believes these elements place Continental in a favorable position despite near-term cost headwinds.
UBSs recommendations come amid recognition that industry dynamics remain mixed, and that outcomes will depend on execution and management of costs. The brokers focus on valuation, execution, and strategic positioning underpins its selection of these two names as best picks in the European autos sector heading into Q1 earnings.
Note: This article reports UBSs outlook and priorities as presented by the broker.