Leading investment banks have selected a slew of stocks ahead of third-quarter earnings in Europe, with Morgan Stanley analysts revealing their "high conviction" picks. "We expect another beat for 3Q results, albeit at a more modest level than prior quarters," Morgan Stanley's Europe analysts, led by Ross A MacDonald, stated in a research note published Oct. 14. They highlighted a number of stocks which the bank's research analysts have high conviction on ahead of the results, in sectors including apparel, banking and services. Fashion firm Hugo Boss is a pick for its estimated 34% sales growth year-over-year for the quarter, according to Morgan Stanley, at the top end of the company's guidance. The bank also likes hotel operator Whitbread , expecting it to have the "strongest" revenue per available room (known as RevPAR, a key metric in hospitality) of its coverage. "Whitbread is our top pick within Travel & Leisure," the analysts added. Laundry services company Elis is set to benefit from a "stronger than expected Hospitality recovery in 3Q," the analysts stated. "We expect Elis to achieve at least double digit growth, even under a conservative Hospitality recovery." French bank Societe Generale is one of Morgan Stanley's financial picks, with analysts expecting revenues to "surprise positively." The other is Italian firm UniCredit , whose fees are set to come back "strongly," the analysts said. Morgan Stanley expects steel firm Acerinox "to deliver the biggest sequential earnings step up in the stainless sector," and also said buybacks are likely, which would see the firm purchase shares from investors. Barclays picks In an Oct. 13 research note, Barclays Europe analysts said they expect firm demand to protect company margins from issues such as supply chain disruptions. "The end of the 'over-earning' period of the past year will likely bring lower equity returns ahead. But '22 could still be a good year for earnings, if demand holds up and supply bottlenecks ease," they stated. "Q3 results will be a reality check for nervous, but still high, equity markets," Barclays analysts warned, as they screened for stocks that have outperformed despite "poor relative EPS revisions and relatively high valuations." EPS refers to earnings per share, a key measure of a stock's performance. Barclays' picks are across sectors including retail, utilities and financial services. In utilities, the bank picked United Utilities Group , SSE and EDP Energias De Portugal , and said it is "positive" on third-quarter results in light of European power prices "reaching fresh all-time highs." In the financial sector, Barclays picked Dutch bank ING Group and Belgian holding company Groupe Bruxelles Lambert . "The continued higher equity markets in Q3 are set to be largely supportive for many of the diversified financial sub sectors," the analysts stated. Retail is set to have a strong quarter, according to the analysts, and stocks on their screen include Zara-owner Inditex , meal company HelloFresh , and fashion retailers Next and JD Sports . Describing their views of different sectors' earnings, Barclays analysts highlighted semiconductor companies Infineon and STMicro as likely beneficiaries of price increases. And in pharmaceuticals it said: "Amongst the pharma SMIDS [small and mid-sized companies] we expect a broadly solid earnings season with some potential for beats and raises from the likes of Hikma , Ipsen and Merck ." UBS stock selection Europe's capital goods companies (which manufacture machinery, vehicles and equipment) are set to outperform the broader market this earnings season, according to UBS analysts led by Guillermo Peigneux Lojo in an Oct. 13 research note. The bank's buy-rated picks in the sector include energy management company Schneider Electric , which the bank said "will continue to benefit from strong growth rates." It also likes manufacturing company Siemens , which it says should "benefit from strong end market trends and continued improvement in execution." Other picks for UBS include plant supplier Andritz , food systems supplier GEA , German packaging company Krones "on likely resilient Q3 numbers," and Knorr-Bremse , a braking systems manufacturer, for likely outperformance in its truck division.
Pedestrians walk past a German luxury fashion house Hugo Boss store in Shenzhen Bao'an International Airport.
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Leading investment banks have selected a slew of stocks ahead of third-quarter earnings in Europe, with Morgan Stanley analysts revealing their "high conviction" picks.