Energy Stocks Poised for Gains as Q2 Order Trends Boost European Semis

UBS has identified energy stocks as prime beneficiaries of current market trends, despite their recent underperformance. This outlook comes alongside strong Q2 order trends, particularly in the European semiconductor industry, prompting Jefferies to upgrade several key firms. The broader market shows a positive business cycle trend, with improvements in global PMI new orders.

Energy Sector Poised for Growth

UBS's recent market report highlights energy stocks as the primary beneficiaries of prevailing market trends. While these stocks have lagged year-to-date, the analysis suggests their potential for future gains. Commodity Trading Advisors (CTAs) are actively acquiring equity indices futures, and retail investors are increasing their holdings in equity ETFs, indicating a broader positive sentiment.

• UBS's price momentum algorithm recommends increasing exposure to single names across various regions and sectors.

• Despite the positive outlook, UBS advises caution, noting that investors are currently selling in the energy sector, suggesting it's not yet the optimal time for immediate purchases.

Shifting Market Positioning

Market positioning reveals interesting trends across different sectors:

• Over-owned: Utilities and Consumer Staples continue to be over-owned.

• Healthy Build-up: Communication Services and Materials sectors are showing healthy accumulation of positions.

Business Cycle and PMI Trends

The positive trajectory of the OECD G20 Composite Leading Indicator (CLI) persists, with recent revisions indicating a less mature business cycle than previously estimated. UBS maintains a strong conviction for long cyclicals over defensives within its regime model.

Global PMI new orders saw a slight improvement in June from earlier depressed levels, though with significant dispersion:

• Strong Improvements: Financials, Consumer Staples, and Healthcare PMIs demonstrated robust improvements.

• Modest Deterioration: Communication Services and Industrials PMIs experienced a slight decline.

European Semiconductor Sector Surges

Jefferies has upgraded earnings estimates and price targets for several European semiconductor firms, driven by stronger-than-expected Q2 order trends in the industrial and automotive segments. This recovery is notably fueled by demand in China, aided by inventory depletion and targeted subsidies.

Key upgrades include:

• STMicroelectronics (STM): Expected to outperform with revenue growth projected from a 27.4% year-on-year decline in Q1 2025 to 22.4% growth by Q1 2026. Price target lifted from €30 to €33.

• Infineon Technologies: AI-related demand remains strong, with FY25 revenues anticipated to reach €600 million and approach €1 billion in FY26. Price target increased from €42 to €45.

• ams OSRAM: Driven by improving demand across industrial, automotive, and consumer segments. Price target raised from €11 to €13.

• Melexis NV: Rebounding from inventory correction, with projected 14.6% revenue growth for FY26. Price target raised from €66 to €80.

Jefferies anticipates this cyclical upturn to continue through Q4 2025, supported by normalized inventory levels and improving end-market demand, particularly in the U.S. and China.

Sources

• UBS signals Energy stocks as main beneficiaries amid market trends By Investing.com, Investing.com.

• Strong Q2 order trends prompt Jefferies upgrades across European semis By Investing.com, Investing.com Canada.

• Strong Q2 order trends prompt Jefferies upgrades across European semis By Investing.com, Investing.com.

• UBS signals Energy stocks as main beneficiaries amid market trends By Investing.com, Investing.com Canada.