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We recently published a list of 10 Best Italian Stocks To Buy Now. In this article, we are going to take a look at where UniCredit S.p.A. (OTC:UNCFF) stands against the other best Italian stocks to buy now.
Italy’s economy has shown remarkable resilience in the face of recent crises, but its growth is now slowing due to tighter financial conditions. As the world’s eighth-largest economy and the third-largest in the European Union, Italy has consistently been a significant player in the global economic landscape. In 2022, its GDP reached $2.17 trillion, with a per capita income of $36,810. Despite facing multiple economic challenges such as rising energy costs and inflation, Italy’s economic growth in 2022 stood at 3.7%. This resilience was fueled by strong fiscal support, gains in competitiveness, and a return to pre-pandemic levels of productivity by mid-2021. However, as of mid-2023, the economy has started to feel the effects of higher interest rates, weakening global export demand, and the gradual rollback of pandemic-era fiscal support.
In 2023 and 2024, economic growth is expected to remain below 1%, signaling a shift in momentum after the initial recovery from the COVID-19 pandemic. The country has been heavily impacted by the euro area’s monetary tightening, which has increased borrowing costs for households, businesses, and the government. Lending rates for households and businesses have surged by around 3 percentage points since mid-2022. This has led to a slowdown in credit growth, which has turned negative, and a cooling of the housing market. While Italy’s banking sector remains well-capitalized and better prepared to absorb shocks compared to the past, the significant holdings of sovereign debt by banks and insurance companies pose potential risks, especially as economic growth continues to slow.
The energy crisis has played a central role in shaping Italy’s economic trajectory. Initially triggered by global disruptions in energy supply, the crisis led to inflationary pressures that eroded household purchasing power. Large-scale fiscal support from the government helped mitigate the impact, allowing real GDP to bounce back to pre-pandemic levels. However, the inflation that followed the energy shock, coupled with rising interest rates, has placed a strain on household incomes, and businesses are facing higher borrowing costs, reducing investment and expansion plans. The effects of these developments are visible in several key economic indicators, with GDP growth projected at a subdued 0.7% in 2023 and 2024, increasing marginally to 1.2% in 2025. Meanwhile, the unemployment rate is expected to hover around 7.6% to 7.8%, reflecting stable but not significant improvements in labor market conditions.
The Italian government has responded to these challenges with a broadly neutral fiscal policy. Much of the emergency support related to the energy crisis has been phased out, but initiatives like the National Recovery and Resilience Plan (NRRP) continue to provide economic support. The NRRP is a cornerstone of Italy’s post-pandemic recovery strategy, aiming to address structural weaknesses in the economy while fostering digitization, innovation, ecological transition, and social inclusion. With a total value of €191.6 billion in loans and grants, the NRRP is the largest recipient of the European Union’s pandemic recovery fund. As of September 2023, nearly half of the allocated funds had been disbursed, with further tranches contingent on Italy meeting various economic and administrative milestones. However, there have been delays in spending the allocated funds, underscoring the need for more efficient implementation and monitoring.
One of the key concerns for Italy’s economy is its high public debt, which stands at 141.4% of GDP in 2023, one of the highest in the OECD. Without policy changes, this figure is expected to remain at similar levels in 2024 and 2025, albeit with slight declines. The Italian government faces immense fiscal pressures, including rising costs related to an aging population and the increasing need for investments in climate change adaptation and mitigation. Public expenditure on pensions alone is substantial, and reforms to reduce early retirement schemes and de-index high pensions could help alleviate some of the burden in the near term. However, longer-term solutions, including tax reforms and spending adjustments, are necessary to ensure the sustainability of Italy’s public finances. The ongoing tax reforms, which aim to tackle tax evasion, promote digital payments, and reduce the erosion of the income tax base, could help address some of these fiscal pressures. Shifting taxes from labor to inheritance and property could also create a more growth-friendly tax structure, providing additional revenue while fostering economic inclusiveness.
Italy’s economic challenges are not limited to fiscal imbalances. The country continues to face difficulties in boosting productivity growth and increasing labor market participation, particularly among women and young people. Labor market participation of women in Italy remains one of the lowest in the OECD, and despite improvements, youth employment prospects are also lagging behind other developed nations. Expanding technical tertiary schools, such as ITS Academy, could improve employment opportunities for young people, while increased access to early childhood education and stronger paternity leave incentives could enhance female labor market participation. In addition to labor market reforms, Italy must also address the long-standing issues of bureaucratic inefficiencies and legal bottlenecks that have hampered both public and private investment. Ongoing reforms to the civil justice system and public administration, which aim to streamline processes and improve accountability, are essential for raising investment levels and productivity in the long run.
In this complex economic landscape, Italy remains an attractive destination for investors. The country is the EU’s third-largest consumer market, with a population of approximately 60 million people. The industrial heartland in the northern regions, stretching from Turin to Venice, is one of the most prosperous and industrialized areas in the world, generating over 50% of Italy’s national income. This concentration of industrial activity, combined with Italy’s position as a key player in sectors such as industrial equipment, renewable energy, food and beverages, software, IT services, and aerospace, provides numerous opportunities for investors looking to capitalize on the country’s economic strengths.
In 2022, Italy recorded a total of $46.2 billion in foreign direct investment (FDI) in the United States, supporting nearly 100,000 American jobs. Top industry sectors for Italian FDI include industrial equipment, food and beverages, and renewable energy. Similarly, U.S. investment in Italy, which totaled $26.1 billion in 2022, is concentrated in sectors like manufacturing, energy, food and beverages, and IT services. The robust industrial relationships between Italy and the U.S. in aerospace and automotive industries highlight the depth of opportunities for cross-border collaboration and growth.
Despite these positives, structural challenges persist, including regional disparities between the industrialized north and the less developed southern regions, known as the Mezzogiorno. With 3.7 million small and medium-sized enterprises (SMEs), many of them family-owned micro-enterprises, accounting for 75% of employment and one-third of GDP, Italy’s economy relies heavily on the vitality of its SMEs. However, the ability of these businesses to grow and thrive is often limited by the same bureaucratic and legal inefficiencies that plague larger enterprises.
In light of these economic trends, investing in Italy presents both opportunities and risks. Investors need to be mindful of the country’s ongoing fiscal and structural challenges but can take advantage of the strong sectors that are poised for growth, especially those aligned with the NRRP’s strategic goals of innovation and sustainability. Italy’s journey through the coming years will be defined by its ability to manage public debt, implement crucial reforms, and foster a more inclusive economy. Our list of the ten best Italian stocks to buy now focuses on companies that are well-positioned to navigate Italy’s current economic landscape, and without further ado, let’s now take a look at them.
Our Methodology
For this article, to make our list of the best Italian stocks, we ranked the forty most valuable Italian stocks that trade on both U.S. and other exchanges by their average analyst share price target percentage upside as of September 26 and picked out the top firms.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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UniCredit S.p.A. (OTC:UNCFF)
Upside Potential: 5.28%
Latest Average Share Price Target: $46.25
UniCredit S.p.A. (OTC:UNCFF), headquartered in Milan, Italy, stands out as a prime investment opportunity in the Italian stock market. As a leading commercial bank with a robust presence in Italy, Germany, Central Europe, and Eastern Europe, UniCredit S.p.A. (OTC:UNCFF) has demonstrated remarkable financial performance and resilience. With a diversified range of services including retail, private, and wealth management solutions, as well as corporate finance and advisory services, UniCredit’s broad reach and strategic execution have positioned it as a top contender for inclusion in any list of best Italian stocks.
In its Q2 2024 earnings call, UniCredit S.p.A. (OTC:UNCFF) reported stellar results, marking the 14th consecutive quarter of profitable growth. The bank achieved record results for both the quarter and the first half of the year, underscoring its strategic prowess and disciplined execution. Key financial metrics reflect a strong performance: net interest income (NII) grew by 5% for the half-year and 2% for the quarter, while fee income saw impressive increases of 6.6% and 10%, respectively. The bank’s cost of risk remained exceptionally low, with a half-year figure of 5 basis points and a quarterly figure of just 1 basis point, highlighting its prudent provisioning policies.
UniCredit S.p.A. (OTC:UNCFF) operational efficiency is equally impressive. The bank’s cost-to-income ratio improved to 36.3%, a 2.9 percentage point enhancement from the previous year, and its net revenue to risk-weighted assets (RWAs) increased to 9.1%. The CET1 ratio rose to 16.2%, up from 15.7% a year ago, and the bank generated €6.7 billion in organic capital during the half-year period. This capital strength supports a robust distribution policy, with €5.25 billion accrued for distribution, equating to 100% of net profit.
Regionally, Italy, UniCredit S.p.A. (OTC:UNCFF) core market, delivered strong results with net revenue rising 5.5% for the half-year and 3.7% for the quarter. The Italian operations achieved a cost-to-income ratio of 33.9% and a return on average capital (RoAC) of 32% for the half-year. This solid performance, coupled with a substantial 20% upside potential based on the latest average share price target of €45.80, makes UniCredit S.p.A. (OTC:UNCFF) a compelling buy in the Italian stock market. UniCredit S.p.A. (OTC:UNCFF) consistent performance, strong financial metrics, and strategic positioning affirm its status as a top investment choice, with significant potential for future growth.
Overall UNCFF ranks 9th on our list of best Italian stocks to buy now. While we acknowledge the potential of UNCFF as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than UNCFF but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.