Ferrari (NYSE:RACE) and Aston Martin Lagonda Global Holdings PLC (LSE:AML) are among preferred European auto sector stocks as the market looks to be normalising, according to Barclays analysts.
Looking ahead to 2024, Barclays said in a note that normalising market conditions mean high earnings from original equipment manufacturers are unlikely to carry through.
That is, order books across Europe are now being fulfilled, used car prices are retreating from all-time highs and tougher conditions elsewhere have already forced manufacturers to cut prices.
Limited volume and mix growth could present another headwind for the sector, Barclays added, alongside “sticky inflation” and the switch to “margin-dilutive” battery electric vehicles (EVs).
However, sustained demand for luxury brands could mitigate any pressures, the bank continued, alongside any potential falls in raw material costs.
As a result, firms including Aston Martin, Ferrari (NYSE:RACE), Volkswagen Group (XETRA:VOW) and Stellantis NV (NYSE:STLA, EPA:STLA) were dubbed as “preferred” by the bank and granted ‘overweight’ ratings.
This was compared to ‘equal-weighted’ firms, such as Porsche AG (ETR:P911) and suppliers including Renold PLC (AIM:RNO).
“We believe it will be difficult to impossible to sustain the high absolute earnings levels of 2023 for most,” the bank said.
“We also acknowledge upside risks from a ‘softer landing’ in the major economies,” analysts added, including from any quicker-than-expected base interest rate reductions.