BofA Securities has singled out two European industrial companies as preferred investment ideas, arguing that share prices already reflect an extended downturn even though the broker views the weakness as cyclical rather than structural.
While demand remains challenged in the near term due to sluggish industrial production across Europe and margin pressure from elevated input costs, BofA says valuations have fallen to levels that imply a permanent loss of recovery rather than a postponement. The broker suggests that this pricing dynamic creates an attractive entry point for investors who can look past the current slowdown.
KION Group
BofA lists KION Group as its top pick within European industrials, assigning the stock a "buy" rating. The broker highlights a combination of a deeply discounted valuation and durable exposure to warehouse automation as the basis for its preference.
According to the broker, KION is trading near cyclical trough multiples despite maintaining solid earnings prospects and continued customer investment in automation projects. BofA also notes that KION has improved contract terms with price-adjustment clauses, which it says enhances margin visibility relative to prior cycles.
BofA contends the market is underestimating the resilience of KION's automation business and anticipates significant rerating potential once industrial demand begins to stabilize.
Jungheinrich
Jungheinrich is likewise rated "buy" by BofA. The broker argues that the company's current valuation more than compensates investors for cyclical risk. While expecting near-term pressure on orders and profitability as industrial activity remains subdued, BofA characterizes these challenges as temporary.
Trading at a sharp discount to historical levels, Jungheinrich is presented as offering leveraged upside to any improvement in European manufacturing conditions. The broker believes that even modest signs of recovery in end markets could prompt a meaningful reassessment of the stock given how pessimistic market expectations have become.
Investor implications
BofA's view is that both names combine depressed market multiples with structural exposure to automation and potential earnings resilience. The broker's recommendation implies that patient investors who can tolerate cyclical headwinds may stand to benefit if order flows and margin dynamics normalize.
Summary and context
BofA argues current share prices in the European industrials sector appear to reflect a more severe and longer-lasting downturn than the broker expects. KION Group and Jungheinrich are highlighted as buys due to low valuations, durable automation exposure, and the potential for rerating should industrial demand recover.
Key points
- BofA views current valuations as pricing in a cancellation of recovery rather than a delay - impacting industrials and manufacturing-related stocks.
- KION Group is favored for its discounted valuation and exposure to warehouse automation, plus improved contract terms that help margin visibility.
- Jungheinrich is rated buy on the basis that its valuation offers leveraged upside if European industrial activity picks up.
Risks and uncertainties
- Near-term demand remains under pressure from sluggish European industrial production - a headwind for industrials and manufacturing suppliers.
- Margin headwinds tied to higher input costs could continue to weigh on profitability in the near term - affecting equipment makers and automation providers.
- Orders and profitability for companies like Jungheinrich may stay subdued while industrial activity remains soft - creating execution and cash-flow risk for cyclical industrial firms.