Peak growth means these global stocks are now a buy, according to Barclays

Published Mon, Jul 19 20218:20 PM EDT

Analysts at Barclays have selected a slew of European stocks that could be long-term winners as the global economy nears "peak growth." "Growth is peaking," a team led by Head of European Equity Strategy Emmanuel Cau said in a research note on Wednesday. They believe that stocks will still "grind higher" in the second half of 2021 but with less upside potential. With the worst of the coronavirus pandemic hopefully behind us, many investment houses now believe the global economy is about to move from a period of strong recovery and into a steadier phase of expansion. This means that second-quarter earnings season, which kicks off fully in Europe this week, could be the mother of all reporting periods. Barclays believes that growth in earnings-per-share (an important metric used by traders to gauge a stock's value) could be about to hit a top. Indeed, the bank highlights that consensus for EPS growth in the three months to June is 120%, mainly because it's being compared to the slump seen during this period last year. Carefully screening the stocks on the pan-European Stoxx 600 index, the Barclays analysts picked out semiconductor stocks including ASML , AMI and Aixtron as favorites. Chip stocks more generally have benefitted from a supply shortage as the pandemic raged and Barclays has an overweight rating on these three firms. In the software and IT sector, Barclays said that SAP , Aveva and Temenos are all "key overweights." It noted that the area is more complex than others and it prefers firms that have long-term opportunities to increase penetration levels. When it comes to insurance, Zurich , AXA and Munich Re are all key picks for Barclays. The analysts said that the three firms benefit from the property and casualty insurance market, which is creating "appealing long-term invest opportunities." Meanwhile, in the internet and media sector, the analysts selected the four ad giants — WPP , Publicis , Omnicom and Interpublic — as their preferred names. They stated that their valuations were still cheap, they expected decent momentum and confidence was gradually returning to the sector. More broadly, Barclays said the trade-off between economic growth and accommodative monetary policy remains supportive for now, with ample liquidity in the global economy. But it noted that it's not getting any better with the Federal Reserve moving close to tapering its asset purchases. It added that inflation could well prove sticky and coronavirus variants may result in more supply bottlenecks. "The H2 [second half] outlook looks less favourable given tougher comps and peaking growth momentum. We think equities, and cyclicals in particular, are likely factoring in the peak in EPS revisions this quarter already," the note said. "But lower and potentially bumpier returns have to be expected with slowing EPS growth ahead."

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Analysts at Barclays have selected a slew of European stocks that could be long-term winners as the global economy nears "peak growth."