S&P Capital IQ Equity Research has revealed its top ten core European investment selections of equity stocks, “Power Picks”, for 2013.
The team has analysed the key themes set to influence the performance of European equities over the next 12 months, and compiled a list of stocks it expects to outperform the broader market. The companies chosen are over a range of sectors including industrial, telecoms, automotive and luxury consumer goods.
The Power Picks list outperformed the DJ Stoxx 600 by 12.2 per cent, on a total return basis in 2012.
As outlined in its 2013 European Equity Strategy Outlook, S&P Capital IQ does not expect the potential likelihood for consolidation in the coming weeks to mask the returning attractiveness of equities as an asset class.
“We believe that the binary risk events of the past few years should dissipate as 2013 progresses,” says Robert Quinn, chief European equity strategist. “This will allow equities to re-rate to 2003-2007 levels, if growth recovers simultaneously”.
“We anticipate that fiscal tightening in 2013 will be of a similar level to 2012, but materially lower in 2014, providing a positive impulse,” says Quinn. “Moreover, we believe the European banking system should be on course to aid economic growth from the same 2014 timetable, after one final tough year of restraint in 2013.”
According to S&P Capital IQ, most of the visible risks for 2013 appear concentrated in the first quarter: the Spanish recession could accelerate lower, causing a subsequent disruption to peripheral spreads and European policy; Italian elections in February have the potential to undo the government’s pro-European progress over the past 18 months; and the U.S. could impose austerity measures similar to those in Europe during the second round of fiscal debates in March. S&P Capital IQ remains sanguine about these issues in isolation, but notes that the odds always increase on accumulators.
In this context, S&P Capital IQ expects macro-dominated events of the past few years to subside and allow traditional stock pickers greater flexibility.
“We have screened our coverage for quality companies which can deliver growth at a reasonable price, one of our consistent themes. This year we include a greater exposure to financials and to European companies with strong businesses in emerging markets,” says Roger Hirst, director of European equity research. “Given our outlook, our Power Picks for 2013 are: ASML, BNP Paribas, Carlsberg, Centrica, Essilor International, Julius Baer, Prudential, Rio Tinto, Sanofi and Telenor.”