UBS names its top 15 global stocks with more than 25% upside

Published Sun, Mar 28 20218:14 PM EDTUpdated Mon, Mar 29 202110:30 AM EDT

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

Analysts from investment bank UBS have picked more than a dozen "high conviction stocks" which they say have an upside of at least 25%. UBS analyzed firms across tech, energy, airlines and more to assess several factors, including those investors "might be missing." The bank's European equity strategists expect some serious earnings-per-share growth in the region — of 50% year-on-year — which, combined with elevated volatility, "creates significant single-stock opportunities." Here are their top stocks picks from a research note published last week, all of which are buy-rated: Consumer Volkswagen is set to become the joint No. 1 — with Tesla — in battery electric vehicles by 2022, UBS estimates. Investors are underestimating the firm's electric vehicle "transformation story," the analysts said, and they expect EV sales to rise each quarter, with stable margins. The bank gave Volkswagen an upside of 26.3%. Reckitt Benckiser provides "the most compelling turnaround story in the European Food and HPC (home and personal care) sector," according to UBS. Health and hygiene products (that sold well during the pandemic), combined with a large e-commerce operation and expansion into new markets will all contribute additional revenue, the bank's analysts said, putting its upside at 27.9%. UBS likes Berlin-based e-commerce platform Zalando for the potential growth in the value of its sales, as well as its partner program that lets businesses sell products to shoppers. It gave Zalando an upside of 34.7% Food delivery company Delivery Hero has a "profitable and dominant leadership position" in the Asian market (excluding China) given its acquisition of South Korean app Woowa, UBS said. It likes its exposure to high-growth markets and gave it an upside potential of 31.4%. (Earlier this month, UBS picked Delivery Hero among its favorite buy-rated food delivery stocks .) UBS also favors French media group Vivendi for its Universal Music Group, which is now 20% owned by a consortium led by Chinese firm Tencent. The bank valued UMG at 35 billion euros ($41.2 billion), which factors in its December acquisition of Bob Dylan's catalog, and gave Vivendi an upside of 28.1%. Financials UBS expects "leading" financial technology company Adyen — which is gradually replacing PayPal as eBay's payments supplier — to grow ahead of its medium-term guidance. It estimated a 34% compound annual growth rate (CAGR) through 2023 and gave it an upside of 31.1%. German real estate company Vonovia is a pick for UBS, as it expects residential property prices to keep rising. The working-from-home trend that started during the pandemic is not expected to have an impact on apartment sales, according to a UBS survey, and the stock has an upside of 26%, the analysts estimated. Industrials UBS expects credit reporting company Experian to see double-digit growth in EBIT (earnings before interest and taxes) from 2022. And while Covid-19 has hit credit checks, UBS noted the company's "healthy pipeline" of clients in the U.S. and U.K. Its upside potential is 38.9%, according to the bank. "Leading" airline group IAG has around 10 billion euros in available cash that will "see it to summer 2021," and if travel is allowed post-pandemic UBS expects it to break even. Added to this, an "extensive restructuring" is set to help it reduce costs and the bank puts its upside at 45.4%. Airbus is also a pick for UBS, given that it is set to "emerge even stronger" from the pandemic. "Airbus's product portfolio and clients are more robust than the market is currently giving credit for," the bank's analysts wrote. They estimate an upside of 28.8%. Energy and utilities Shell is a pick for UBS, due to its "significant" capacity for generating cash. "The shareholder remuneration route is clear," the bank's analysts noted, and estimated an upside of 25.3%. Oil and gas company Subsea 7 is a pick for UBS due to its "strong" balance sheet and "cash-generation potential," which the bank says is "under-appreciated" by investors. The analysts also liked its mix of oil and gas assets, as well as its offshore wind business. They gave it an upside of 27.6%. Spanish electricity firm Endesa "trades at a significant discount to peers," UBS said. While the firm is shutting down coal plants and decommissioning nuclear power stations, the bank anticipates renewables will replace their capacity. UBS also expects power prices in Spain to grow 40% this year, and said the stock has an upside of 36.2%. Telecoms T-Mobile owner Deutsche Telekom is a buy for UBS, which said it is a "notably stronger" company after its merger with Sprint. The bank said the company is "well-positioned" to compete against Dish, which is building a 5G mobile network in the U.S. Deutsche Telekom's upside is 38.6%, according to UBS. Italian wireless network company Inwit is also a pick for UBS for its merger with Vodafone Italy's mobile tower unit and "solid fundamentals." The firm has around 22,000 towers in Italy, making it the country's largest player and positioning it for increased demand as 5G is developed. Inwit has an upside of 30.9%, according to UBS. For each of its stock picks, the UBS analysts considered six things: pivotal questions driving the stock, what's currently priced in, what the market might be missing, any new evidence the analysts had uncovered, potential upside versus downside and key catalysts.

A Boeing Co. 747 passenger aircraft, operated by British Airways, takes off at Heathrow airport in London, U.K.

Chris Ratcliffe | Bloomberg | Getty Images

Analysts from investment bank UBS have picked more than a dozen "high conviction stocks" which they say have an upside of at least 25%.

UBS analyzed firms across tech, energy, airlines and more to assess several factors, including those investors "might be missing."

The bank's European equity strategists expect some serious earnings-per-share growth in the region — of 50% year-on-year — which, combined with elevated volatility, "creates significant single-stock opportunities."

Here are their top stocks picks from a research note published last week, all of which are buy-rated: