Personal Finance

Bet on Defensive European Stocks: Strategist

The Benchmark FTSEEurofirst 300 Index has fallen 14 percent over the past quarter on deepening European debt woes, but one strategist still finds defensive plays with strong cash flows a good place to invest.

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"Look at sectors, and look at names which have got very good free cash flows, which have got enough cash to finance their own growth and which are paying dividends as well," Willem Nabarro, Head European Equities at Exane-BNP Paribas Asia told CNBC on Wednesday.

He added that he would prefer investing in equities in these companies rather than in their bonds. "We're looking at growth. That is the thing that we'll be looking at."

Nabarro recommends three sectors, especially in Europe: Telecom, oil and gas and pharmaceuticals.

Among the telcos, he cautions investors to avoid companies that have large capex plans that are yet to be deployed.

Nabarro likes Swiss telco giant Swisscom , which has already gone ahead with its planned capital expenditure and still has cash left over. This helps the company focus on its weaker segments like its struggling Italian business Fastweb - which it expects will start generating cash next year. Given its dividend payout as well, makes it a good bet, according to Nabarro.

Japanese brokerage Nomura is also bullish on Swisscom. It has the stock as one of its top defensive picks. It recently reiterated its "buy" rating on the stock, with a price target of CHF430 ($541.73). The brokerage thinks the telco will benefit from the Swiss franc's appreciation against the U.S. dollar and euro as three-quarters of its domestic cost base is denominated in francs.

Britain’s Vodafone is another telco Nabarro likes. Over the last quarter, while the broader FTSE lost 9 percent, Vodafone's stock was down a modest 1 percent.

"The whole market collapsed, Vodafone remained more or less stable," Nabarro said.

Vodafone's global exposure is also a big plus for the company. Its 45 percent stake in America's Verizon Wireless ensures investors a steady dividend stream. In addition, its exposure to Asia - where it has tie-ups in India and China – will support growth.

In the oil and gas space, Nabarro recommends stocks that have underperformed, like French giant Total .

Like Swisscom and Vodafone, it too has a large cash flow. The stock has fallen 15 percent in the past 12 months, compared to the broader CAC's 12 percent decline, but Nabarro says, "That's a name that will definitely catch up."