Towards the end of the just completed first quarter, U.S.-based hedge funds began dumping American equities and shifting capital into European stocks. In an analysis, investment bank Morgan Stanley (NYSE:MS) found that hedge funds “have bought EU equities in nearly 70% of the trading sessions” since the European stock market began to rally in January of this year. Hedge fund exposure to Europe has grown from below 17% at the end of 2023 to roughly 19% at the end of Q1 this year, says Morgan Stanley.
The move into European stocks comes amid growing concerns that U.S. equities have become too expensive and are in overbought territory. Europe’s main STOXX 600 index is up 7% so far this year, lagging the 10% gain in the benchmark S&P 500 index in the U.S. The S&P 500 index currently trades at 21 times forward earnings estimates, while European equities trade at 14 times, according to data from Bank of America (NYSE:BAC).
In a recent note to clients, investment bank Goldman Sachs (NYSE:GS) said that “Europe has room to catch up with the U.S.” as the discount between both is the deepest it has ever been. Here is hedge fund favorites: three European stocks attracting significant U.S. investment.
Novo Nordisk (NVO)
Soros Fund, the hedge fund controlled by billionaire investor George Soros, began loading up on shares of Danish pharmaceutical giant Novo Nordisk (NYSE:NVO) last autumn, buying 1.5 million shares worth $138.8 million. Soros Fund is one of several hedge funds that have been buying up stock of the company that makes the popular weight loss drugs Wegovy and Ozempic. Soaring demand for the weight loss medications has NVO stock up 60% in the last 12 months, including a 25% gain so far in 2024.
Huge demand for its weight loss drugs and rising stock price has made Novo Nordisk Europe’s largest publicly traded company with a current market capitalization of $437.25 billion. Hedge funds have been buying up NVO stock on expectations of strong future earnings and as the company develops a weight loss pill to replace the current injections that are used to administer the medications. A pill is forecast to be a gamechanger for the burgeoning market for weight loss prescriptions.
ASML Holding (ASML)
Dutch semiconductor company ASML Holding (NASDAQ:ASML) is owned by so many hedge funds that in February of this year, Morgan Stanley put out a report stating that ASML is one of Europe’s most “over-owned” stocks. The company specializes in the development and manufacturing of photolithography machines that are essential to the production of computer microchips. Artificial intelligence (AI) is fueling demand for ASML’s technology, sending the stock up nearly 40% this year alone.
Appaloosa Management is a hedge funds that’s been betting big on ASML stock since the second half of last year, run by famed investor David Tepper. Appaloosa first opened a position in ASML Holdings stock last August, buying $58 million worth of shares. The hedge fund has steadily increased its stake since then. ASML Holding is growing its role in the global semiconductor market, particularly in China, as AI technologies fuel a renaissance in the sector.
Star Bulk Carriers (SBLK)
Star Bulk Carriers (NASDAQ:SBLK) is a lesser known European company and stock. Based in Greece, Star Bulk Carriers is a global shipping company. It operates a fleet of carrier vessels that transports iron ore, coal, and grain between Europe, North America and Asia. SBLK stock gets little attention, but has proven to be a very good investment. It has risen 14% in the last 12 months and 222% in the past five years. The stock also trades at only 13 times future earnings estimates.
SBLK stock pays a hefty quarterly dividend of 36 cents a share, giving it a yield of 6%. So which hedge fund titans own Star Bulk Carriers? None other than Michael Burry, the famed investor profiled in the book and film The Big Short. Burry owns 250,000 shares of the company currently valued at just under $6 million. Star Bulk Carriers is one of only a few European stocks held by Burry’s Scion Asset Management hedge fund, according to its latest 13F securities filing.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
