June 22, 2012 / 8:13 AM / 6 years ago

Goldman sees opportunity in European auto stocks

(Reuters) - European auto stocks are poised to deliver higher returns over the next three years as companies benefit from better management and a growing middle-class consumer base, Goldman Sachs said, adding Volkswagen AG VOWG_P.DE, the world’s second-biggest carmaker, to its conviction buy list.

The brokerage, however, lowered its target price on Renault SA (RENA.PA), Porsche Automobil Holdings SE (PSHG_p.DE) and Daimler AG (DAIGn.DE) by an average of 3 percent to reflect high market volatility and uncertainty.

The STOXX Europe 600 Automobiles & Parts index .SXAP was down about 1 percent at 0800 GMT. Shares of BMW AG (BMWG.DE), Continental AG (CONG.DE), GKN Plc GKN.L, Peugeot SA (PEUP.PA) and Pirelli & C SPA PECI.MI were all down more than 1 percent.

Goldman, however, maintained its attractive view on the sector, and forecast a 10.8 percent return on invested capital for 2012 through 2014, compared with an average of 6.4 percent over the last decade.

“The process of global economic realignment and the creation of a bulging middle class, particularly in developing economies, will deliver structurally higher average global car sales growth,” Goldman wrote in a note to clients.

Volkswagen is best positioned among global car companies with its well-balanced sales footprint and potential for substantial cost savings, the brokerage said.

Goldman also upgraded tire makers Nokian Renkaat Oyj (NRE1V.HE) to “buy” and Michelin SCA (MICP.PA) to “neutral,” given recent share price weakness and lower raw material costs.

The brokerage also raised its price targets on Sweden’s Volvo AB (VOLVb.ST) and Scania AB SCVb.ST.

Shares of Nokian fell 6 percent to 28.60 euros by 0735 GMT on Friday. Rheinmetall (RHMG.DE) was down 2 percent, while Fiat FIA.MI was up about 1 percent.

Reporting by Rachel Chitra; Editing by Tenzin Pema

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