Profit from Europe's companies' growth potential

The Fidelity European Trust's co-portfolio manager, James Mackreides, chooses three stocks

The Fidelity European Trust strives for steady long-term outperformance through stock selection and adopts a cautious approach to risk. The strategy's main goal is to find businesses that can increase their dividends sustainably over a three to five year period. Businesses should have four key attributes that we look for: a strong balance sheet, cash generation capabilities, positive fundamentals, and an appealing valuation.

Additionally, we aim for sectoral balance because we think that stock selection ought to be the main factor influencing performance. The strategy's emphasis on high-quality companies gives it a competitive advantage in less competitive markets. Furthermore, our long-term goal is to lower transaction costs and enhance performance.

The top European airline is ready to take off.

Ryanair, a straightforward airline based in Dublin, presents an alluring opportunity. With a strong emphasis on cost containment and revenue generation, it is among the most affordable suppliers in a commoditized sector. Despite working in a difficult industry, the company stands out for having the best management team in the field. It also owns its aircraft, has the highest route density in Europe, and is attractively valued.

Strong potential for long-term capital returns is evident in the improved balance sheet and the normalized market environment. Given the limited supply of new aircraft and the grounding of competitors' aircraft, the company can also profit from higher-than-anticipated fare increases. These elements work together to produce an engaging structural narrative.

An energy company that produces and sells electricity, natural gas, and fuels is TotalEnergies (Paris: TTE). One of the few companies in a cyclical industry that continues to pay out dividends consistently in spite of fluctuating earnings is this one. With a careful and well-executed management approach, the company stands out as a superior long-term capital allocator.

The upstream portfolio of the group is still strong and includes excellent projects. Additionally, TotalEnergies prioritizes the interests of its shareholders and exhibits sound forward planning. Along with the conventional natural gas and oil industry, it has refocused on more renewable energy sources, such as solar, wind, biomass, hydrogen, and electricity. One of our top positions in the trust is held by TotalEnergies, whose long history of dividend growth gives us confidence.

An AI stock to play.

We are most excited about seeing the revolutionary effects of the wider adoption of AI in 2025. One important holding in our trust is the French electrical company Legrand (Paris: LR), which is a notable stock in this industry. We view Legrand as a more understated approach to profiting from the AI trend, even though many investors concentrate on well-known US leaders in the field.

Many of the "white space" components for data centers, such as power distribution units, switches, and transformers, are supplied by the company, and this segment of the business is expanding rapidly. The remainder of Legrand's business, which focuses on residential and non-residential construction, is also in a strong position to gain when these markets bounce back from cyclical lows.