UBS: Automotive sector under pressure, optimistic about transformation potential stocks

Investing.com – UBS believes Europe’s auto sector is facing multiple pressures stemming from the Middle East conflict: rising energy and input costs, supply-chain risks, and demand uncertainty are all weighing negatively on market sentiment.

The broker said that since the outbreak of the conflict, the sector has fallen 10-15%, reflecting market concerns about cost-driven inflation and weakness in global light-vehicle production.

Against this backdrop, UBS favors selecting names with strong company-specific catalysts and transformation potential, with a focus on recommending Stellantis and Continental Group.

Stellantis

UBS’s constructive view on Stellantis is based on the transformation outlook for its North American business; the key drivers are the rollout of new products and improvements in the vehicle lineup.

The broker believes that as execution strengthens, adjusted operating revenue could increase by about €3 billion, and the upcoming earnings results as well as the capital markets day scheduled for May will serve as near-term catalysts.

However, UBS also noted that oil prices are a key risk factor, because persistently high fuel costs could cause U.S. market consumers to shift demand toward smaller cars with lower profit margins.

Continental Group

For Continental Group, UBS highlighted its plan to sell the Contitech unit as a clear company catalyst; this could unlock substantial shareholder value through a special dividend and repositioning it as a tire-focused manufacturer.

The broker estimates this could realize value of €40-50 per share, helping narrow the large valuation discount versus peers, while also simplifying the investment rationale surrounding its core business.

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