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Investing.com -- The upcoming second-quarter European earnings season is likely to be shaped by modest expectations and sector divergence, with zero overall growth forecast for the period, according to UBS strategists.
The team sees “considerable downgrades” in tariff and currency-sensitive industries, especially autos, transport, tech hardware, luxury, and food and beverage. Still, select names could surprise the market on the upside.
The strategists identified two groups of stocks to watch this quarter. One includes companies with improving earnings revisions that remain heavily shorted. UBS highlights Antofagasta (LON:ANTO), Poste Italiane SpA (BIT:PST) and SAAB (ST:SAABb) as names that “could see a Q2 surprise.”
Conversely, Anglo American (JO:AGLJ) PLC (LON:AAL) was flagged among those with deteriorating revisions and a crowded long position, posing potential downside risk.
A second group is made up of companies where Q1 EBIT figures were significantly ahead or behind schedule. UBS says firms that have already achieved over 30% of their full-year (FY) EBIT estimate may be in line to upgrade outlooks.
This list includes Boliden (ST:BOL), Adidas (OTC:ADDYY), Iberdrola (BME:IBE), BMW (ETR:BMWG), Galp Energia (ELI:GALP), and Orsted (CSE:ORSTED).
Meanwhile, those running behind schedule—such as Lufthansa AG (ETR:LHAG), H&M (ST:HMb), IAG (LON:ICAG) and Nokia Oyj (ST:NOKIA)—may need to lower full-year guidance if Q2 results fail to close the gap.
“Outlook statements matter more than earnings, though,” strategist Gerry Fowler said, adding that any commentary that looks positively into 2026 could be rewarded by markets. ‘
The bank remains cautious on 2025 due to tariffs and sluggish sales, but expects a rebound in 2026, led by cyclicals tied to stimulus and consumer dis-saving.
Sector PMIs suggest broad-based resilience, with software, industrials, business services and construction materials showing healthy trends.
By contrast, banks, autos and mining were identified as laggards. UBS notes that while banks “were amongst the strongest in recent years,” recent PMI data indicates a more fragile near-term outlook.
Ultimately, UBS believes investors should “hang on to cyclicals for the 2026 upswing,” pointing to the long-term potential despite current market headwinds.