However, with certain member countries showing signs that they are over the worst, Alken Asset Management’s Nicolas Walewski says now could be the perfect time for investors to take advantage of cheap valuations.Walewski (pictured) says non-cyclical sectors such as healthcare, consumer staples, and food and drink companies have already experienced a re-rating and he expects the climb to continue en force throughout the year.
"There has already been a re-rating in these stocks. With the world not going very fast, why would you want to buy cyclical stocks?" he said.
The manager tips three European stocks that he expects big things from in the medium-term.
Temenos
One of the companies Walewski expects to take off in 2013 is banking software systems provider Temenos.
The Swiss firm was founded in 1993 and provides banking software systems to retail, corporate, private and community banks.
While investors have been understandably wary of the out-of-favour financial sector, Walewski says major firms are beginning to reinvest in infrastructure, which leaves Temenos in a strong position to gain ground.
"After four to five years of a downturn in capital expenditure from banks, this is the first time they are starting to spend again on IT," he said.
"They are realising they have to invest in their future and Temenos is in a competitive landscape where there are very few companies at the moment."
He says one of the biggest attractions of investing in the firm is the high likelihood of a takeover.
Last year, Temenos was in merger talks with UK-based FTSE 250 company Misys after it failed to reach an agreement with Fidelity.
The manager says beyond Misys, the firm is a "takeover target" for the likes of German multinational software corporation SAP, US technology giant Oracle and IBM.
"We believe [a takeover] will naturally happen," Walewski said.
Over the last year, the mid cap stock has gained an impressive 43.48 per cent. It is yielding 1.2 per cent.
No funds in the IMA universe hold the stock in their top-10.
Carrefour
Walewski has taken a stab at recovery play Carrefour in recent months.
"Carrefour used to be a phenomenal company 20 or 30 years ago," he said. "But then they got sleepy and ineffective about 15 years ago."
However, Walewski says new chief executive officer Georges Plassat has started to turn the company around, although there is still plenty of work to be done.
"At the moment there is a new CEO, Georges Plassat. He’s been there for about one year and we believe he is doing all the right things."
"We feel there is plenty more in the bag. You don’t restructure a company overnight. It takes about three years and is about increasing profit margins and selling unprofitable assets. Plassat is a very experienced retailer."
The French food retailer is up 75.13 per cent in the last year, and is yielding 2.49 per cent. Walewski expects to see at least a 25 to 30 per cent annual return for the next three years.
Only three funds in the IMA universe hold Carrefour in their top 10 – Alastair Mundy’s Investec Global Special Situations fund, the SVM Continental Europe portfolio and UBS Global Optimal.
Grifols
This Spanish-based pharmaceutical and chemical company is likely to corner the blood fractionation market until 2018, according to Walewski.
"We believe Grifols is the most interesting of the companies in this space and will see the most earnings growth in the next few years," he said.
Walewski explains the length of time it takes to pass permissions needed to market blood plasma makes the supply inelastic and that when the market tanked in 2008, many companies stopped investing in order to retain their capital.
"When the crisis struck, the other two major companies stopped investing for a few years."
"Grifols is the only major company increasing its supply until 2017 to 2018. It will capture market share and show strong earnings growth in the next few years. And that, we believe, is not priced in."
No funds in the IMA universe hold the stock in their top-10.
Walewski manages the specialist Alken European Opportunities fund.
Since launch in January 2006, it has made 97.15 per cent compared with 48.74 from its STOXX Europe 600 index benchmark.
Performance of fund vs index since launch
Source: FE Analytics
The fund tends to perform better in rallies, outperforming its benchmark in 2007, 2009, 2010 and 2013, but lagging the index in the down markets of 2008 and 2011.
So far this year, the fund is up 21.1 per cent, compared with just 11.18 per cent from the sector.
It is highly concentrated, with the top-10 holdings making up nearly 50 per cent of the 56-stock portfolio. The fund’s top-20 holdings make up 72.55 per cent of the fund.
Grifols is one of the top-10 holdings in the €2.8bn fund, along with Munich-based global financial services and technology company Wire Card and multinational building materials and distribution company Wolseley.
Telecommunications, media and technology is its highest sector weighting, accounting for 43.8 per cent of AUM. Its second highest weighting is to consumer products, at 20.55 per cent.
The fund requires a minimum investment of €1,000 and has ongoing charges of 1 per cent. The fund also has a performance fee of 10 per cent.