Before the bell: Star stocks like Alphabet and Melexis are looking cheap

European investors can sleep in this Easter Monday. Will they go bargain hunting afterward?

In last week’s shortened trading week due to Good Friday, European stocks played leapfrog with their U.S. counterparts. While European indices like the DAX (+4.1%), BEL20 (+4.2%), and Euro Stoxx 50 (+3.1%) made strong gains, U.S. indices lost ground. The S&P 500 fell 1.5% and the Nasdaq dropped 2.6%. European stocks staged a bit of a catch-up rally after lagging the previous week. Markets also saw some stabilization, including a modest recovery in the oil price to 64 dollars per barrel. That’s still low, but oil stocks nonetheless rebounded sharply. The week’s highlights included weak earnings from luxury giant LVMH, while pharma titan Eli Lilly surged on promising obesity drug trial results. Meanwhile, the Fed kept interest rates unchanged, while the ECB cut rates again by 25 basis points.

This morning in Asia, Japan’s Topix index is down 1.1%, while the Hang Seng in Hong Kong is up 1.6%. This week, attention turns to more corporate earnings, with reports expected from SAP, Tesla, Boeing, Intel, IBM, Merck, and P&G. In addition, S&P Global will publish flash PMI results for the U.S. and Europe—early snapshots of April business sentiment. With tensions rising over the trade war, many are anxious about the potential impact on confidence. European markets are closed today for Easter Monday, while U.S. trading resumes as usual.

A low-valued monopolist

Alphabet, Google’s parent company, will report earnings on Thursday. Analysts expect revenue to have risen by 11.8%, with earnings per share growing 6.4% to 2.01 dollars. After losing 22.9% in the past three months, the stock is now trading at just 19 times last year’s earnings and 17 times projected 2025 earnings—making it the cheapest stock among the Magnificent 7. For a business with high margins, a rock-solid balance sheet, and ongoing growth, that valuation is far from demanding. But Alphabet is under fire for its dominant position in search. Just last week, a class action suit was filed in the UK, and a U.S. judge ruled that the company abused its advertising market power. It’s not the first time Google has been penalized. And with a softening economy, advertising budgets are often the first to be cut.

A cyclical growth story at rock bottom?

Melexis is also trading at valuation levels we haven’t seen in a long time—11.5 times last year’s earnings and 15.4 times expected 2025 earnings. Analysts anticipate further earnings decline this year after a modest dip last year. As many know, inventory drawdowns among Melexis’ automotive electronics customers can weigh heavily on revenue—but that could be followed by a rebound, as demand picks up again. With carmakers incorporating more and more chips, structural demand for Melexis’ products continues to grow. The current share price is hovering near the lows seen during the COVID-19 crash. It’s unclear whether Trump’s new import tariffs will apply to Melexis chips, but he has hinted at a delay to avoid harming U.S. automakers.

Did you know…

that investor sentiment among fund managers has plunged to its lowest level in 30 years? According to Bank of America’s monthly survey, 82% of respondents believe the global economy is headed for a significant slowdown.

This article was translated from Dutch and was originally published on Spaarvarkens.be.