Analysts at JPMorgan picked a raft of "tremendous" global stocks that they say are trading at a discount, as they expect earnings growth to hit double digits for the first time since 2017. "Those SMid-Cap stocks most largely owned by passive funds are delivering tremendous alpha!" the analysts wrote in a research note published Sept. 3, referring to small- to mid-sized companies' ability to perform better than the broader market. Passive investing is when a fund buys a stock for the long term. "While we acknowledge these potential short-term 'waves' and wouldn't be surprised if SMid-Caps gave up some ground in Oct, we continue to believe the underlying 'tide' is still very positive and should continue to serve as a tailwind for SMid investors through at least the first half of next year," the analysts led by Eduardo Lecubarri stated. Stock prices for small- to mid-sized firms are less expensive compared to other types of asset, the analysts added. "Nominal GDP growth is expected to remain strong, which should help corporate margins recover, pushing earnings growth into double digits for the first time in four years … a scenario that should eat into valuation multiples, giving SMid-Caps an undemanding valuation against that of most other asset classes," the analysts wrote. JPMorgan defined small- to mid-sized companies as those with a market capitalization of between $100 million and $5 billion. Top picks In the U.K., the analysts are overweight energy firm Centrica , saying it is "Down big + cheap despite many [positive] drivers." They also picked packaging firm DS Smith , saying it is "down big" from a 2018 high and has a "solid growth trajectory." Irish oil refiner DCC is also on JPMorgan's list, with analysts saying it is "Down double digits still + trading at discount to the broad SMid mkt despite resilient business." It also chose auto wholesaler Inchcape for its "good" free cashflow yield — a measure of performance — and said it expects car sales to pick up as the economy recovers. Spanish Steel company Acerinox has its "strongest" balance sheet in recent history, according to the analysts, who also like its exposure to the U.S. with its post-pandemic recovery plans. French furniture firm Maisons du Monde is another overweight pick, trading at a "big discount," according to the bank. Other stocks it is overweight on include French auto parts company Plastic Omnium , which it called a "quality play" with a solid balance sheet, and Switzerland-based IT firm SoftwareOne , whose stock is below industry average valuations, the bank said. In Asia, it picked Indonesian TV company Media Nusantara , which it said has an "undemanding" valuation and a very solid balance sheet. JPMorgan also chose Taiwanese Simplo Tech, a battery manufacturer, which it said has "attractive business growth areas such as e-bikes." The bank is also overweight South Korean tire firm Hankook Tire, which it described as "Down big from highs, solid balance sheet … A safer way of gaining exposure to autos."
The main entrance at JPMorgan's headquarters in New York City.
Erik McGregor | LightRocket | Getty Images
Analysts at JPMorgan picked a raft of "tremendous" global stocks that they say are trading at a discount, as they expect earnings growth to hit double digits for the first time since 2017.