Stellar growth to buoy these European stocks

Helped by aggressive monetary stimulus by the European Central Bank (ECB), a flurry of euro zone companies are set to deliver hefty returns for investors over the coming years, according to an uber-bullish note by Citi.

Referencing the name of a popular U.K. reality TV show called the "The only way is Essex," the investment bank stated "the only way is equity" in the research note.

Austrian architect Wolf Prix of CooP Himmelblau gestures during a media tour of the the new European Central Bank (ECB) headquarters on September 20, 2012 in Frankfurt, Germany.
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Austrian architect Wolf Prix of CooP Himmelblau gestures during a media tour of the the new European Central Bank (ECB) headquarters on September 20, 2012 in Frankfurt, Germany.

Citi's strategists, led by Jonathan Stubbs, said the asset class in Europe has never been cheaper compared to fixed income in the last 60 years.

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"We stay bullish on European equities," Citi said in the note, which was published on Wednesday. "Growth, in our view, validates the relative attraction of European equity."

Banks, insurance and technology stocks were Citi's top picks, along with travel & leisure, financial services, media and real estate. Among the team's "conviction buy" list was Dutch insurance firm Aegon, German chemical producer BASF, French food manufacturer Danone and automaker Renault.

The pan-European Stoxx 600 Index has already rallied 20 percent this year, but Citi said that European equities could return an extra 40 percent to investors by the end of 2016.

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Stubbs and his team said that euro zone stocks had undergone a "re-rating" since the ECB first hinted at the possibility of quantitative easing and were now back near their long-term price-to-book average – a calculation that analysts use to gauge the value of a company's shares.

Other stocks Citi liked included Nordic telecom firm TeliaSonera, luxury group Kering and German automotive company Continental. It was less bullish on autos, health care and basic resources, however, and was "underweight" on oil and gas companies.

A raft of equity analysts in recent weeks have extolled the virtues of buying stocks from the euro zone, which is expected to see earnings growth this year due to the extra liquidity provided by the ECB's quantitative easing program and the weak single currency.

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Martin Todd, co-manager of the Hermes Sourcecap European Alpha fund, named five "growth gems" in a research note earlier this month, including Spanish airport operator Aena, Zurich-based food business Aryzta and financial services firm Wirecard.

Piers Curran, the head of trading at Amplify Trading, told CNBC via email last week that he would favor cyclical stocks in the current environment. However, JPMorgan was more cautious, stating in a research note last week that investors should take a "strategic approach" to the European rally and chose portfolios that were rigorously managed sector-by-sector.

Even Citi gave a caveat in its bullish note this week, highlighting that equity bubbles "cannot be ruled out."