After a few years of false starts, the gains enjoyed by the FTSE 100 and European peers like the DAX show that investors are catching onto the fact that the continent’s equities might finally have something to shout about.
The performance of the blue-chip benchmarks in the past year has been more about a valuation-led catch-up, but UBS thinks 2026 will see, for the first time in three years, a return to earnings growth in Europe.
Several London-listed companies, including Aviva, NatWest, RELX and ITM Power have been highlighted among the Swiss bank’s top trades and beneficial trends that should drive performance in the coming year.
UBS strategists estimate a 7% rise in earnings per share on average for European stocks, compared to expectations from the wider analyst consensus nearer 10-11%.
As well as the long-awaited improvement in company earnings, the case for Europe also rests on policy support, undemanding valuations and improving sentiment.
“European equities are entering a new era in 2026,” the analysts argue, “underpinned by accelerating domestic growth, robust fiscal expansion, and a wave of structural investment.”
Banks, boards and buybacks
Insurers are among the standout sector for UK names, according to the UBS view of the “top themes” in the coming year.
Both Aviva PLC (LSE:AV.) and Admiral Group Plc (LSE:ADM) are flagged in the bank’s top-rated “REVS” stocks – those that screen well on regime, earnings, valuation, and sentiment.
Aviva, trading on 11 times 2026 earnings and yielding 5.5%, scores highly thanks to “resilient cash flows and high dividend yields”. Admiral is slightly more expensive on 13x, but offers a chunky 7.3% yield.
UBS also likes M&G, which trades on just 9x next year’s earnings and yields 7.5%. It’s one of the cheaper names in the sector and, in a market that still values defensiveness, that counts.
The banks get a tick too, with UBS seeing European banks as likely to continue outperforming US peers, supported by “accelerating loan growth, effective cost control, and robust capital positions”.
NatWest Group PLC (LSE:NWG) also comes up in a GOTCHA stock screen, filtering for Global Opportunities for Thematic CHAmpions.
The GOTCHA acronym aims to group together stocks benefiting from structural tailwinds like electrification, renewables, and productivity gains. UK names in the mix include RELX PLC (LSE:REL), Sage Group PLC (LSE:SGE), Breedon Group Plc (LSE:BREE), ITM Power PLC (AIM:ITM).
Of these, RELX and Sage also feature companies seen as likely productivity winners from AI.
UBS says: “Early adoption is driving some margin expansion and operational efficiency,” and adds: “We focus on those in the sectors where AI might drive this further.”
RELX in particular is singled out as one of Europe’s “larger, well-capitalised firms with robust data, IT infrastructure, and a culture of innovation”.
While Europea is seen on lacking the big tech way into the AI story (apart from ASML and ARM), UBS sees this angle as being one that might actually deliver: not from flashy frontier tech, but from operational leverage and better margins in data-heavy businesses. “Productivity is Europe’s ‘unlock’. AI proliferation may help.”
Avoid autos, chemicals, or household
And what to avoid? UBS isn’t keen on autos, chemicals, or household products, seen as facing cyclical and structural headwinds, including inventory overhang, margin pressure and cost challenges.
The household category includes one big UK name: Unilever PLC (LSE:ULVR). While it benefits from strong brand equity and pricing power, the analysts are not convinced.
Unilever’s margin targets “look demanding as consumer elasticity rises,” they write.
Another area where the strategists are cautious is defence, as while security spending remains a multi-year theme, sector “valuations are elevated and positioning is crowded”.
“This is a risk when positive earnings revisions have become quite variable rather than persistent. Recent trading around the index performance is likely to continue even as earnings growth is delivered.
“Investors may wish to rotate exposure towards less crowded themes with greater valuation headroom and more consistently positive earnings revisions support.”
