Why you shouldn't ignore these 3 European stock market giants

Investors shouldn’t let Airbus fly under the radar – it’s a giant in the aviation world.

At its core, Airbus is a designer and assembler. It gathers thousands of parts from companies worldwide and assembles them to make aircraft.

When it comes to competition, the market is dominated by two companies, with the split standing at roughly 60/40 in Airbus’ favour.

But we think recent events will see airlines place more orders with Airbus over the coming years, tilting the balance more in its favour. Meanwhile, high barriers to entry also help keep outside competition at bay.

There’s strong demand as airlines try to upgrade their fleets after years of COVID-19 underinvestment. As a result, the order backlog swelled to 8,749 aircraft at the end of the third quarter. That’s more than 11 times the number of planes Airbus expects to have delivered in 2024 (around 770), giving the group great revenue visibility.

However, some of Airbus’ suppliers have struggled to keep up with demand, slowing production volumes.

2024’s full-year delivery guidance remains on track, but it could be a slow start to 2025. Management has put plans in motion to resolve these issues, although it could be next year before production ramps up materially.

Then there’s the Space division.

The new management team conducted an in-depth review and had to book significant charges due to mispricing previous contracts. We can’t rule out a further, much smaller charge, but this should close the door on a painful chapter for the company.

As a result, 2024’s full-year operating profits are expected to fall by around 7.5% to €5.4bn, before rebounding around 36% this year. The balance sheet is in good shape, with net cash forecast to eclipse €10bn. If this happens, management has hinted at increased shareholder returns, but there are no guarantees.

The valuation is slightly above the long-run average, but we don’t think that’s too demanding given its improved market position and strong demand outlook.

If Airbus can iron out supply chain issues, there could be a long runway of growth ahead. Of course, this isn’t a simple task and there are no guarantees so expect some turbulence along the way.

Siemens is a global technology powerhouse. Its operations span various industries, and we see it as a unique blend of outstanding businesses.

Markets aren’t anticipating Siemens’ revenue growth to shoot the lights out, with mid-single-digit growth expected over each of the next three years, from a base of nearly €76bn. But this growth looks fairly robust to us, given the vital nature of many of the group’s products and services.

The Smart Infrastructure division focuses on the transition from fossil fuels to renewable energy sources. The size of opportunity here is vast, but we don’t expect the world to make a rapid transition, so it’s seen as more of a ‘steady-eddie’ in our eyes.

However, performance could get a helping hand from governments around the world as they try to fulfil their net-zero pledges.

Although Siemens spun off its healthcare division in 2018, forming Siemens Healthineers, the group still owns a roughly 75% stake in the business.

Healthineers is a leading global provider of medical technology, offering a wide range of diagnostic and therapeutic tools and services.

We like the exposure to healthcare given demand tends to remain strong even in times of economic difficulty. Revenue was up around 5% last year, outpacing global economic growth.

Alongside an expanding and ageing global population, the growing healthcare market looks set to play into the group’s hands.

Digital Industries (DI) is where we see the biggest opportunities.

This segment provides manufacturers with extensive support, from product design and development to production and post-sale services. There are plenty of software and tools on offer to automate and monitor production processes, making them more efficient and reducing manufacturers’ time to market.

DI is a vital cog in global manufacturing, with more than a third of the world’s factories now run by Siemens’ automation software. And given software's scalable nature, there’s room for profitability to improve if Siemens can nail its proposition.

Keep in mind though that its contracts are typically front-loaded, so revenue and profits can be lumpy, making DI's exact trajectory difficult to map.

Weakness in Europe and China hurt sales and profits last year, and we can’t guarantee a swift rebound. But we’re cautiously optimistic about the longer-term picture.

Siemens trades towards the bottom end of its peers on a price-to-earnings basis. That feels unjustified to us given the vital nature of its businesses and growth opportunities, especially in DI. But there are no guarantees that market prices change to reflect that view in the near future, if ever.

TUI is a diverse travel business, owning an airline, cruise ships, hotels, and resorts. It serves over 20 million customers every year, giving them access to more than 180 destinations.

Recent history hasn’t been kind to the group. Investors might remember repeated government rescues, mounting net debt, and severe shareholder dilution as TUI issued new equity in a scramble for cash.

It’s easy to still see TUI as it was then – a struggling company in a struggling package holiday market. But the package holiday market is a very different place now because of Thomas Cook’s bankruptcy – TUI now has more market share and a stronger competitive position.

As a result, it can afford to be more flexible on capacity, only committing to around two-thirds of its flights and rooms ahead of time. The rest is filled ad-hoc, meaning if big demand shocks like COVID-19 or a European heatwave come around again, profitability is much better protected.

Back to more recent performance, 2024 was a blockbuster year. Despite broader economic pressures, consumers have been prioritising travel, enabling TUI to hike prices while still managing to fill even more rooms and cruise cabins.

This combination has boosted efficiency and saw full-year underlying operating profits soar 35% to €1.3bn.

Growth is expected to normalise at a high single-digit range for both revenue and profit this year, which shouldn’t be scoffed at. And in some ways, having a wide package holiday business makes it more defensive – there's more to offer and plenty of cross-selling opportunities.

But the drains on cash when you have planes, huge hotels and even cruise ships to fill are enormous, so keeping occupancy rates high will be key to success.

Net debt has come down substantially in recent years and is now at a level we’re happy with. Continued improvement here will be vital to any potential return of dividends – remember though, these are never guaranteed.

Wider risks include rising tensions in the Middle East and the Suez Canal, which have the potential to disrupt business and put some customers off travelling. This is largely outside of TUI’s control and can make it difficult to map demand accurately.

The valuation is well below its long-run average, which we see as unjustified given its much-improved financial and competitive position. But the industry's cyclical nature and demand's sensitivity to macro-events mean there are likely to be more ups and downs ahead.

The author holds shares in TUI.