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Bet on cyclical rally in Europe: Pro

Thursday, 9 Jan 2014 | 1:36 PM ET
Europe turned the corner: Pro
Thursday, 9 Jan 2014 | 12:29 PM ET
Europe is starting to "repair itself," explains Randy Brown, Deutsche Asset & Wealth Management, with his investment play on the euro zone's recovery. Brown's top sector picks include consumer discretionary, industrials and financial services.

Three cyclical sectors hold more promise for strong returns in 2014—outside the United States, Deutsche Bank Asset Management Co-CIO Randy Brown said Thursday.

"We think the U.S. growth will continue to accelerate, but we think that Europe has turned the corner," he said.

Noting that Europe's gross domestic product experienced negative growth in 2013, Brown said he expected 7 percent GDP growth in 2014 and EPS growth in the 10 to 15 percent range.

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On CNBC's "Halftime Report," Brown said a third argument for investing in Europe was his belief that people were underinvested.

"So, while we like the U.S., our call this year is that we like European stocks more," he said.

Brown said that signs were pointing to a recovery in Europe that wasn't relegated to the United Kingdom and Germany.

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"If you look at the periphery, it's starting to repair itself, its balance sheets," he said. "Consumer sentiment is higher. Demand is higher. Confidence is higher.

"There's a different feeling in Europe. Clearly, there's risk to the call. It's not going to be a one-way trade. So, just like in the U.S. stock market … we could see a retracement. Europe is not going to be one-way, but we do expect it to be higher."

Brown also said a weakening euro would help boost EPS growth.

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"And so, sector-wise, we think some of the more cyclical sectors, like consumer discretionary, industrials, even financials in Europe, should benefit more than some of the more interest-sensitive sectors," he said.

Stephen Weiss of Short Hills Capital said Europe was "not cheap," adding that there were still problem areas.

"France is a disaster in the happening," he said.

TheStreet CIO Stephanie Link said a better play might be via U.S. technology companies, which have roughly 30 percent exposure to Europe.

Simon Baker of Baker Avenue Asset Management said he was surprised to hear a bullish call on the consumer discretionary sector.

"Retail over there, like Tesco, has continued to be soft like it has in the U.S.," he said.

By CNBC's Bruno J. Navarro. Follow him on Twitter @Bruno_J_Navarro.

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