Cherry Picking Defensives in Europe

Investors should continue to invest in defensive stocks in strong dividend sectors like telecommunications, technology and pharmaceuticals, said Willem Nabarro, head of European equities for Asia at Exane-BNP Paribas on Tuesday.

"We especially like the sectors where you have very, very good dividend yields because effectively cash is still not getting you anything. Fixed income is not giving you very good returns either," he said.

Telecom operators like KPN, Portugal Telecom, Eutelsat and BT are attractive as they have net yields of more than 7 percent, according to Nabarro.

In the pharmaceutical sector, he said he likes companies like Novartis and Roche that have very high free cash flows and dividend yields of up to 5 percent.

Semiconductor companies like Infineon, STMicroelectronics and Soitec hold the most value in the tech sector, Nabarro told CNBC.

Cherrypicking in Europe

"The dollar looks to trade around $1.41 this year. If we look at semiconductor companies' outlooks, they expect the dollar to trade in the $1.45-$1.50 range, which means they will get an enormous boost on the PEs (price-earnings ratio) and on their profit margins," he said.

Another sector of interest is oil and gas as prices for the two commodities have risen due to a cold winter in Europe, the U.S. and Asia, according to Nabarro.

"Royal Dutch Shell is definitely a company you want to have a look at, as it has a net yield of around 5 percent," he said.

If the economic recovery picks up pace, construction and building materials would be another sector to look at, especially a company like Vinci, Nabarro said.

Nabarro is underweight cash, as central banks have reduced yields to low levels.

Europe and Japan will keep interest rates low for the next two years, while if employment figures in the U.S. improve next year, interest rates for the country could begin to rise in the second half of 2011, he added.