In
Europe
—
much
like
in
the
U.S.
—
a
few
key
stocks
have
been
driving
the
market,
especially
earlier
this
year,
according
to
Morgan
Stanley.
In
late
February,
just
five
stocks
were
responsible
for
60%
of
European
stock
market
gains
year-to-date,
the
bank
said.
But
it
believes
that
the
performance
will
start
to
broaden
out,
as
history
indicates
that
small-cap
stocks
typically
lead
the
market
higher
in
the
following
six
months.
“As
this
theme
of
‘broadening
out’
becomes
more
important,
we
think
investors
will
increasingly
look
to
quality
small
caps
at
attractive
valuations
as
sources
of
alpha,”
said
Morgan
Stanley
in
an
April
3
note.
It
names
three
“overlooked”
stocks
that
it
says
are
cheap
and
quality
names,
with
significant
upside:
healthcare
software
provider
CompuGroup
,
cybersecurity
firm
Exclusive
Network
s,
and
W.A.G.
Payment
Solutions
.
The
bank
has
an
overweight
rating
on
all
three
stocks.
CompuGroup
Morgan
Stanley
says
this
stock
screens
as
the
cheapest
in
its
coverage
of
software
names,
and
upgraded
the
stock
to
overweight
on
the
attractive
valuation.
It
also
holds
leading
market
positions
in
several
countries
including
Germany,
France
and
Austria,
the
bank
added.
“CGM
benefits
from
the
typical
attributes
of
the
software
business
model
e.g.
high
customer
stickiness
given
the
high
switching
costs,
highly
recurring
revenue
(~70%)
providing
high
visibility,
the
ability
to
put
through
annual
price
increases,
healthy
margins
which
should
be
boosted
by
operating
leverage
and
price
increases,
and
healthy
[free
cash
flow]
generation,”
the
analysts
wrote.
Morgan
Stanley
gave
CompuGroup
a
price
target
of
37
euros,
or
23%
upside.
W.A.G.
Payment
Solutions
W.A.G.
Payment
Solutions’
core
is
in
fuel
payment
cards,
but
it
has
since
expanded
to
cater
to
the
needs
of
the
European
trucking
industry,
the
bank
noted.
The
company
has
grown
into
one
of
the
largest,
most
integrated
payment
providers,
Morgan
Stanley
said.
The
bank
says
this
is
also
a
cheap
stock
–
on
an
absolute
basis
as
well
as
relative
to
peers.
It
gave
the
stock
a
price
target
of
135
pence,
or
98.5%
upside.
Exclusive
Networks
Morgan
Stanley
says
this
is
one
of
the
largest
and
fastest-growing
specialist
distributors
of
cybersecurity
products
globally.
“We
continue
to
view
Exclusive
as
an
attractive
way
for
European
investors
to
play
the
theme
of
cybersecurity
in
a
diversified
manner,”
the
bank
said.
“The
challenge
in
cyber
—
unlike
other
software
markets
—
is
that
the
basic
problem
you
are
trying
to
solve
is
ever
present.
The
nature
of
threats
is
constantly
changing,
and
so
the
products
offered
by
the
vendors
–
and
the
vendors
themselves
–
are
constantly
changing,”
Morgan
Stanley
said.
“This
means
there
is
significantly
more
value
a
specialist
distributor
can
bring
to
the
channel.”
It
said
Exclusive’s
ability
to
attract
and
expand
with
best-in-class
cybersecurity
vendors
enables
the
firm
to
attract
more
partners
and
customers.
The
bank
increased
Exclusive’s
price
target
from
24.5
euros
to
26.5
euros,
representing
15.7%
upside.
—
CNBC’s
Michael
Bloom
contributed
to
this
report.