Top 5 European Stocks to Buy in 2025, According to RBC

RBC has highlighted a selection of European stocks poised for strong performance in 2025, spanning diverse sectors. Key picks include L'Oreal, favored for its attractive valuation and anticipated growth recovery; EDP Renováveis, expected to deliver significant capacity additions and value-accretive projects; Ferrari, positioned as a luxury brand with production upside from electrification; Safran, a high-quality aerospace supplier with strong catalysts and a valuation disconnect; and Schneider Electric, projected for robust organic growth and strong EPS CAGR.

Analysis

RBC has identified five European equities with strong performance potential for 2025, presenting a cross-sectoral thesis. For L'Oreal, the bank views recent underperformance as a temporary dislocation, highlighting an attractive entry point as the stock trades at its 5-year trough price-to-earnings valuation, with a recovery expected to be driven by its marketing strength and innovation pipeline. This view is supported by Goldman Sachs' Buy rating, which notes the fragrance category has grown to 14% of group sales. In the renewables sector, EDP Renováveis (EDPR) is positioned for growth following the resolution of parent balance sheet issues, enabling a focus on value-accretive projects. RBC projects significant capacity additions of 2GW in 2025 and 1GW in 2026, supported by strong underlying fundamentals, including a 20% year-over-year increase in underlying EBITDA as of Q2 2025. For Ferrari, RBC frames the investment case as a luxury goods play rather than a traditional automotive stock, citing its high EBITDA margins and potential to exceed its 15,000 unit per year capacity with its new E-building. While analyst sentiment is mostly positive with recent upgrades, a notable downgrade to Sell from CFRA on growth concerns introduces a point of contention. In aerospace, Safran is presented as a high-quality supplier with a valuation disconnect compared to its US peers, offering upside potential driven by catalysts like the strong commercial aftermarket and execution of the LEAP engine program. Lastly, Schneider Electric is highlighted for its consistent performance, with RBC forecasting a 7% organic growth run-rate supporting a 9% EPS CAGR through 2029, further bolstered by its strategic €5.5 billion acquisition to consolidate its Indian joint venture.

Key Decisions for Investors

• Investors could consider RBC's diversified list as a foundation for European equity allocation, with specific opportunities in consumer, renewable energy, luxury, and industrial sectors.
• L'Oreal presents a potential value-growth opportunity, as its current 5-year trough P/E valuation may be attractive for investors who believe the cited macroeconomic headwinds are temporary.
• For Ferrari, it is critical to weigh RBC's bullish luxury thesis against the noted Sell rating from CFRA, suggesting investors should monitor the execution of its electrification strategy and production ramp-up closely.
• The identified valuation disconnect between Safran and its US peers, combined with multiple positive catalysts, suggests investors should analyze the stock for potential relative outperformance within the aerospace and defense sector.
• EDP Renováveis may appeal to investors seeking exposure to the energy transition, given its clear capacity growth targets and improving financial profile now that parent-level balance sheet risks have been removed.