Discovering Europe's Undiscovered Gems In May 2025

Europe’s investment landscape in May 2025 is a mosaic of resilience and opportunity, forged in the crucible of geopolitical tensions and structural shifts. While tariffs, trade wars, and fiscal uncertainties dominate headlines, a closer look reveals undiscovered gems across sectors and regions—companies and strategies poised to thrive amid the chaos. This article explores where to find them, supported by data-driven insights and actionable themes.

The European Investment Climate: Storm Clouds with Silver Linings

The BlackRock Investment Institute’s Q2 2025 outlook underscores a market at a crossroads. European equities have declined 17% from March highs due to U.S. tariffs and recession fears, yet valuations now trade at 12.6x forward earnings—below their 20-year average of 13.0x. This creates a fertile ground for long-term investors, provided they navigate risks with precision.

Key Sectors to Target: Where Resilience Meets Growth

1. Infrastructure Equity: Building the Future

The German government’s push for public spending on infrastructure—including green energy and tech—has made this sector a cornerstone of opportunity. Companies like Jensen-Group NV (NL: JEN), a Dutch manufacturer of industrial laundry systems, are leveraging automation and infrastructure projects.

• Jensen-Group reported 32.5% earnings growth in 2024, far outpacing its machinery industry peers. Its net debt-to-equity ratio of 2.4% and undervaluation at 42% below fair value make it a compelling pick.

2. Utilities in Spain: Riding the AI Wave

Spain’s utilities sector is benefiting from both economic recovery and AI-driven efficiency gains. MCH Group (SE: MCHG), a construction materials firm, saw earnings surge 43.6% in 2024 as demand for sustainable infrastructure boomed.

3. Healthcare: Niche Players Thrive

• RHÖN-KLINIKUM AG (DE: RHK), a German healthcare provider, is capitalizing on aging populations and post-pandemic demand. With 12% earnings growth and a debt-to-equity ratio of 10.8%, it trades at 62% below fair value, offering asymmetric upside.

• Pharmanutra S.p.A. (IT: PHMN), an Italian nutraceutical firm, delivered 29.4% earnings growth in 2024, fueled by international expansion and a cash-rich balance sheet.

4. Digital Finance: TF Bank’s Dominance

Swedish digital bank TF Bank AB (SE: TFBANK) is redefining banking agility. With a 26.5% net profit margin (the highest among Nordic banks), it grew earnings 59% YoY in 2025, backed by consumer/SME lending and minimal bad debt (1.3%).

5. Metals & Mining: Green Economy Catalysts

• Gränges AB (SE: GRNG), a Swedish aluminum producer, is expanding into China to tap Asia’s demand for lightweight EV materials. Despite trading at 72% below fair value, its debt-to-equity ratio has improved from 83% to 48% since 2020.

Country-Specific Strategies: Where to Look

Germany: Fiscal Stimulus = Infrastructure Gold

While German equities are underweight due to valuation concerns, sectors tied to government spending—like construction and tech—offer outsized returns.

Spain: Utilities and Undervaluation

Spain’s utilities sector is neutral-rated, but companies like MT Højgaard Holding A/S (DK: MTHH) are undervalued. It reduced debt from 109% to 26% over five years and achieved 17.1% earnings growth.

The Netherlands: Caution in Tech

The Dutch tech sector, while exposed to AI-driven demand, faces valuation headwinds. Avoid overpaying for semiconductors unless fundamentals justify the price.

Risks to Avoid: Geopolitical and Fiscal Landmines

1. Trade Wars: U.S. tariffs on autos, pharmaceuticals, and China remain unresolved, threatening sectors like German automakers.
2. Fiscal Constraints: Italy and France face credit downgrades due to budget deficits, pressuring bonds and equity valuations.
3. Earnings Downgrades: Consensus forecasts for MSCI Europe (6% 2025 EPS growth) may be overly optimistic if recession risks materialize.

Conclusion: A Tactical Approach to Europe’s Gems

The Q2 2025 outlook for Europe demands a defensive yet opportunistic stance. Key takeaways:
- Infrastructure equity (e.g., Jensen-Group) and European high-yield credit offer 12–15% upside in a volatile market.
- Quality defensive stocks like RHÖN-KLINIKUM and TF Bank provide stability amid geopolitical storms.
- Geographic focus: Germany’s fiscal stimulus and Spain’s utilities sector are high-conviction areas.

• European HY spreads are 2.5% wider than U.S. peers, offering better compensation for default risk—a compelling entry point.

Investors should prioritize companies with strong balance sheets, undervalued stock positions, and exposure to structural trends like decarbonization and digitalization. While risks loom large, Europe’s undiscovered gems are primed to reward those who look beyond the noise.

Data sources: BlackRock Investment Institute, company financial reports, and market analysis.