JPMorgan says these regions are trading ‘cheap’ and picks a raft of stocks

Published Thu, Oct 14 20217:47 PM EDT

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

Analysts at JPMorgan have named Japan and Europe as two regions that are trading "cheap," saying that Japanese stocks in particular are at "record" lows. "[The] Eurozone backdrop appears very encouraging with respect to vaccinations, growth and the level of policy support. Eurozone is delivering strong earnings rebound, is trading cheap … The Recovery Fund began to be implemented in the summer and the labour market is resilient," JPMorgan's analysts led by Mislav Matejka said in an Oct. 4 research note. "Eurozone is among the best performing regions this year. We upgraded Eurozone late last year taking advantage [of] its sharp underperformance," the analysts said, adding that they prefer stocks that operate domestically rather than internationally. The European Union has raised more than $900 billion to help the bloc recover from the coronavirus pandemic. "Japanese equities continue to trade at record cheap valuations," they stated, adding that stock valuations in Japan "appear attractive." "We believe that the cash-rich balance sheets help Japanese corporates withstand the worst impact of the crisis," the analysts stated. JPMorgan is overweight on both regions. The analysts named several baskets of stocks for Europe that play to various themes. In its "JPM continental reopening basket," its picks included airport operator Flughafen Zurich , billboard company JCDecaux , tire maker Pirelli , airline Ryanair and fashion brand Hugo Boss . In a basket of "COVID-19 positive impact plays," that benefitted from people working at home during the pandemic, its picks included Adidas , meal company HelloFresh , insurance company Admiral Group , pharmaceuticals firm Roche and French grocer Carrefour . Such picks "could offer potential short opportunities," the bank stated. Short selling is a technique used by investors who borrow a stock and immediately sell it, betting that it will fall in price. When it does, they buy the stock back and return it to the lender, making a profit. In its "JPM Eurozone Domestics," stock picks included CaixaBank , Poste Italiane , Merlin Properties and Commerzbank . "We believe that as relative growth trends continue to firm up in Eurozone, domestic stocks will do better as well," the analysts said. Infrastructure investments in the U.S. and Europe are set to benefit several stocks, JPMorgan said. "The infrastructure bill announced in the US could be significant in magnitude, and a more targeted way of supporting the economy," the analysts stated. The Democrats aim to pass President Joe Biden's infrastructure bill by the end of the month. Some European firms working in the U.S. are likely to be beneficiaries of such a plan, including equipment renter Ashtead Group , Deutsche Telekom , building materials company CRH and cable manufacturer Prysmian , according to JPMorgan. In terms of Japanese picks, JPMorgan chose "Target Stocks for October" in a separate research note seen by CNBC. Suntory Beverage and Food is on the list, as it is "entering a phase of structural profit growth," and is set to restructure, according to the analysts in a Sept. 30 note. It also chose financial firm Mitsubishi UFJ , its top pick in banking, and said it is likely to increase dividends over the next three years. Real estate firm Tokyo Tatemono is also on the list for its "path to stronger profits."

Passenger aircraft operated by Ryanair stand on the tarmac at London Stansted Airport on May 1, 2020.

Chris Ratcliffe | Bloomberg | Getty Images

Analysts at JPMorgan have named Japan and Europe as two regions that are trading "cheap," saying that Japanese stocks in particular are at "record" lows.