PARIS European share prices have yet to reflect fully the impact of cheaper commodities, with analysts forecasting some stocks could rise as much as 50 percent in coming months.
Oil, metals and electricity - representing between 20 and 45 percent of input costs of many companies in the industrials, chemicals and construction sectors - have fallen sharply this year and, when the moves are priced in, could lift these stocks in the second half of the year, some say.
"Equity analysts are waiting to see if the bear trend (falling prices) will stick before reviewing their profit forecasts, but it's clearly not a temporary dip," Diamant Bleu Gestion fund manager Christian Jimenez said.
The slide in energy prices has mostly been driven by the supply spike stemming from the U.S. shale gas boom, while a fall in demand in top metals consumer China, where growth is slowing, has hammered prices for copper and other industrial metals.
Even though some European industrial companies could feel the pinch of slower Chinese growth, it should be more than offset by a pick-up in U.S. growth and the sharp drop in input costs, especially energy, said Pierre-Yves Gauthier, head of strategy at AlphaValue.
"When strategists from big U.S. banks start flagging the trend, probably fairly soon, it will be a wake-up call for investors and analysts. This could become the main driver for the market in the second part of this year."
Airlines - for whom jet fuel can total 40 percent of costs - have already benefited from the lower prices, with Ryanair, for example, (RYA.I) up 50 percent since the start of the year.
Big potential beneficiaries of falling commodity prices include Ireland's CRH (CRH.I), one of the world's largest building materials providers. Materials costs represents 43 percent of CRH's revenues, according to JPMorgan strategists.
Cement makers such as world No.1 Lafarge LAFP.PA - energy costs alone represent a third of cement production costs - could make big gains from the end of the commodity "supercycle".
AlphaValue's Gauthier said the drop in commodity prices could spark gains of 50 percent in some stocks.
"Most investors still believe that oil will just keep rising and rising in the long term. But when they suddenly realize that things are changing, with massive supply coming from shale gas, then the impact on equities will be major."
Oil and copper prices have lost about 15 percent since early February, and polls by Reuters show both falling further this year and next.
The overall impact on stocks of the commodity slide is unclear. Mining and energy shares, which make up 11 percent of the Euro STOXX 600 index have taken a hit. The Basic Resources sub-index .SXPP is down 18 percent this year, with energy shares also underperforming.
Indeed, Europe's earnings momentum - analyst upgrades minus downgrades as a percentage of the total - remains negative, with all sectors except airlines seeing more downgrades than upgrades.
The slide in commodity prices means their lock-step moves with equities - in place since 2008, when central banks began injecting liquidity into the system, dampening bond yields and pushing investors into both riskier asset classes - have broken down.
"There's a change in the energy paradigm," said Bertrand Lamielle, head of asset management at B*Capital. "Prices are dropping because of the surge in supply, and that might just be the beginning."
(Graphics by Blaise Robinson, editing by Simon Jessop and Nigel Stephenson)