S&P Capital IQ Equity Research has unveiled its mid-year top ten core European investment selections of equity stocks. The companies are chosen over a range of sectors including industrial, telecoms, automotive and luxury consumer goods.
&P Capital IQ’s European equity research team has conducted its analysis of the key themes set to influence the performance of European single stocks, compiling a list of equities it expects to outperform the broader market over the next 12 months. The ‘Power Picks’ list has outperformed its benchmark, the S&P Europe 350, by 8.5% year-to-date.
Robert Quinn, Chief European Equity Strategist, said: “We continue to look for cheap safe haven plays. For our stock selection, we have qualitatively screened our coverage for quality and sustainability, these being growth – primarily emerging markets – earnings and yields. If the current market does stabilise, the strength of any bounce back will be meek in our view. Equity markets usually bounce at these junctures, but a lack of any clear, near-term positive catalysts makes us doubt the strength of any immediate rebound. European equities rely on the rest of the world for a sustainable upturn, but unfortunately the rest of the world is taking an extended breather. We focus on protected earnings as we head into another painful earnings season.
“However, it does appear that activity levels may be close to stabilising in some European countries, with June's Purchasing Managers Index Composite for the Eurozone settling at 46.4 while the UK manufacturing also recovered ground after May’s slump. It is our expectation that the current contraction will stretch through Q3 with challenging markets over the summer months, followed by an uptick in Q4 2012.
S&P Capital IQ Equity Research Top Ten ‘Power Picks’
Well placed and conservatively-managed premium automaker, with new product momentum, ongoing cost focus and a strong balance sheet. Strong sector preference for premium versus mass market, with a positive geographical exposure to China, with 50% pre-tax profits, and a strong US position.
Continues to maintain its position as a high-quality food producer with significant positions in faster-growing global food categories and over 50% of revenues derived from emerging markets. Supporting its defensive-cum-growth investment profile, the group generates over a third of group revenue in Northern Europe and North America.
Petrofac’s goal to double 2010 Earnings-Per-Share by 2015 is feasible. Its Integrated Energy Services (IES) division assists national oil companies in developing their reserves and will drive a major portion of its growth. IES contracts will provide stable cash flow over the next 25 years – regardless of oil price or the sector’s business cycle.
Attracted by its market leading product portfolio and deep penetration into a steady-demand healthcare franchise, Coloplast offers significant EBIT margin expansion from a well-executed production relocation, optimization and cost control. Its move to emphasise top-line growth strategy with a focus on US business and Urology will sustain earnings growth.
Good earnings visibility over the next five years thanks to an order backlog equivalent to 11 years sales. The key driver of the group’s performance is Airbus, accounting for around 70% of sales, which is ramping-up production to fulfil its record order book. Despite current economic uncertainty, we do not expect significant order cancellations given the bias towards emerging markets.
Main business drivers are its quality concessions operations, a global construction business with a robust order book, and high growth industrial services. The quality of its French toll road operations, which contribute on average 58% of group EBIT from inflation-indexed tariffs, helped keep margins stable through the crisis. It will begin a programme of strategic investment into its highmargin, specialty contracting business – Soletanche Freyssinet.
A software stock with 50% of its revenues from recurring maintenance fees and subscriptions, SAP is relatively low risk, in our view. But while many investors regard it as a steady cash cow, milking its ERP franchise, we see significant scope for organic growth coming from mobility, real time analytics (HANA) and cloud computing, catalysed by the recent acquisitions of SuccessFactors and Ariba.
With a largely defensive sales profile and positive cost momentum, SCA upholds its position as the leading hygiene and paper company. With 75% of sales derived from hygiene, forecast margins are expected to return to peak in 2012 thanks to higher prices, new product launches and lower input costs, not to mention increased European exposure to an ageing population.
With a strong position in the Norwegian home market; exposure to high-growth Asian markets; management drive to enhance profit margins for the year ahead and increased shareholder remuneration make this a high favourably, high growth profile stock.
Recent results have shown improving trends in Vodafone’s emerging market growth engines, typically India and South Africa, showing signs of a turnaround in its mature European business.Â Growth in data services is beginning to offset regulatory and competitive price pressures on voice. We expect Vodafone will beat its adjusted EBIT guidance for the year ending March 2013. With an 8% dividend yield, well covered by cash flows, and an ongoing share buyback programme, Vodafone has an attractive valuation.