Europe's Best Performing Large Stocks in 2025 So Far
“It’s a huge pocket of growth going forward, and where I can I’m fully invested,” said Vera Diehl, a portfolio manager at Union Investment Privatfonds GmbH, regarding defence. “That is the future in terms of earnings growth, that’s where we’ll see it.”
The rally played a major role in Europe’s outperformance. In dollar terms, the region’s Stoxx 600 Index had its best ever quarter versus the S&P 500. A Goldman Sachs Group Inc. basket of pure-play European defence shares rose by a record 70% in that period. Companies such as Thyssenkrupp and Iveco Group NV were also lifted by speculation around sales and listings of military units.
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Morgan Stanley European defenceInvestor Survey | Institutional investors' European defence sector positions
Investor demand has sent valuations soaring. A number of defence stocks now trade on forward earnings multiples that exceed those of the luxury and tech sectors. Rheinmetall, Saab AB and Kongsberg Gruppen ASA trade at around 40 times. Leonardo SpA is on the cheaper side, trading at around 24 times.
Morgan Stanley strategists led by Marina Zavolock polled over a hundred European defence investors in March. They said the results supported their overweight stance overall, though positioning remained light with ESG restrictions easing only gradually and the sector still being “discovered” by a broader set of generalist investors.
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European Defence Stock Valuations Surge | Sector's valuation has now overtaken luxury stocks'
Amid the frenzy, some investors have been more indiscriminate in their approach. “People are buying small caps that say they have an exposure to the defence business that we need to pick up with a magnifying glass,” said Alec Cutler, a Bermuda-based portfolio manager at Orbis Investments.
Charlotte Ryland, head of investments at CCLA Investment Management, is holding off on European defence shares until “rhetoric becomes reality” in terms of profitability. “Given valuations, given the historic returns these businesses have made, we’re not at a point where we’re rushing in and saying we should be buying everything,” Ryland said.
European Defence Stocks Hit a Record High in March | A Goldman Sachs basket is up around 70% this year
Still, bullish investors remain undeterred. “Our system loves all European defence,” said Patrick Armstrong, chief investment officer at Plurimi Wealth LLP, which uses artificial intelligence and machine learning to pick stocks. Valuations might be getting stretched, he added, but “Germany and EU policy will drive revenue growth that leads to estimates being beaten.”
