The managers of JP Morgan Funds – Euroland Dynamic Fund are finding interesting opportunities amongst European travel and leisure companies, such as RyanAir.
Fund manager Jon Ingram says these stocks exhibit high quality, positive momentum and attractive valuation. Speaking about RyanAir, he notes their excellent traffic statistics and increasingly strong passenger capacity growth. The company has introduced business class and allocated seating, which has helped increase revenue. He also expects lower oil prices to act as a tailwind for the company.
Whilst Ingram continues to monitor deflation prospects in the Eurozone, he’s used ECB QE as an opportunity to increase exposure to cyclical stocks. He cited for example Daimler, which is a beneficiary of the strength of the USD versus the euro given its USD based revenues, although he notes the company hedges its currency exposure, mitigating the impact of any underlying currency moves. As another cyclical play, Ingram cites Continental for its exposure to European auto manufacturers.
As a currency weakness play, Ingram likes US grocery chain Delhaize Group, which has a cost base primarily in Euros but significant USD exposure from operations across the US east coast. Another example of this is the Dutch convenience store company Ahold, which should also be a beneficiary of ECB QE’s Euro weakness.
Ingram and co-managers are broadly bullish on Europe and the economic recovery. Europe has outstripped the US in earnings growth the last few quarters, surpassing them for the first time in five years. Falling oil prices should boost earnings growth as it contributes to lower input costs. Also, less fiscal drag and the uptick in credit lending in the Eurozone is a healthy sign. And European corporates who derive more than half of their revenues from outside Europe will benefit from the declining Euro.
Jonathan Ingram is a fund manager of the Euroland Dynamic Fund at JP Morgan Funds