Value, growth, and robust cash flows are provided by Europe's underappreciated stocks

Co-portfolio manager Jonathan Regis of Lansdowne Partners' Developed Markets UCITS Strategy identifies underutilized stocks in which he has invested

The upcoming decade will be significantly different from the previous one. Demographic changes, deglobalization, and a resurgence of industrial policy are all changing the global economy and, consequently, the underlying assumptions of equity market returns. We support businesses where structural change is both significant and undervalued, and we search for changes that the market hasn't yet priced in. It must be significant and misinterpreted, regardless of whether it is a change in the dynamics of the industry, a regulatory turning point, a step change in demand, or an instance of productivity being unlocked. When the change we perceive is not priced in, an opportunity presents itself, and valuation is essential.

We concentrate on "forgotten equities"capital-intensive businesses with strong cash flows, primarily from the UK and Europe, mispriced risk premia, and undervalued assets. This evolution shows how global growth is evolving and where we anticipate the returns to be in the coming decades.

Worth seeing are forgotten stocks.

One of the two fundamental facts about banking that are frequently overlooked is that, on average, the sector grows at least as much as the nominal GDP. Second, because incumbents gradually increase their market share and earn higher returns through organic growth or consolidation, economies of scale are particularly potent in the banking industry.

We think that after the industry has been under tremendous stress for the past 15 years, this norm is reclaiming itself. Even though a lot of banks reported impressive results in the most recent quarter, interest-rate hedges kept those results understated. We anticipate more positive momentum as these hedges unwind in the upcoming years and banks are exposed to higher rates. Combining share buybacks at low valuations with balance-sheet growth that surpasses cost inflation makes the sector's potential for earnings growth very attractive. In UK and Irish banks like NatWest Group (LSE: NWG), Lloyds Banking Group (LSE: LLOY), and AIB Group (Dublin: A5G), this supports our belief that valuations still do not account for these tailwinds.

The market is still stuck in the past in the building materials sector as well. For many years, materials companies were left out as stagnant volumes were concealed by rising home prices. However, home construction, renovation, and infrastructure spending are now Europe's top priorities, and the need for robust onshore supply chains is being fueled by deglobalization, the energy transition, and digitization. Due to limited industry supply, years of underinvestment, and growing political will to boost construction, volume growth may resume and margins may increase. Pricing power in a weak-volume environment has already been proven by a number of these companies. If demand returns to normal, there may be a significant upside.

A major European provider of building materials, Saint-Gobain (Paris: SGO), is, in our opinion, priced for a return to the pre-Covid levels of stagnant construction. A cyclical recovery and structural growth, however, are becoming more likely as a result of new demand drivers, declining inflation, and anticipated interest rate changes. Gains in market share are also made possible by dominant positions in industries like glazing, insulation, and energy-efficient materials.

A German semiconductor company that supplies the power chips needed for industrial automation, AI infrastructure, and electric vehicles (EVs), Infineon Technologies (Frankfurt: IFX) has fared better during the industry downturn than its competitors and appears to be well-positioned to profit when demand picks up. Although its growth prospects are arguably stronger than those of its US competitors, its valuation is still modest. Demand for Infineons components is expected to increase significantly as AI becomes more integrated into daily infrastructure.