Credit Suisse names a raft of U.S. and European stocks to buy as inflation fears spike

Published Wed, Nov 10 20219:06 PM EST

U.S. and European stocks have been on a tear this year, but inflation concerns are causing some investors to reconsider their approach. Now, Credit Suisse has updated its global equities strategy, picking the stocks it expects to outperform as headwinds to growth mount. The S & P 500 is up more than 25% this year, while the pan-European Stoxx 600 has risen over 20%. Despite this rally, however, concerns over inflation and the looming wind-down in the Federal Reserve's stimulus program are increasingly weighing on investors. Against this backdrop, Credit Suisse analysts favor European value stocks and "dividend aristocrats," the latter being companies which grow their dividends consistently. "Since 2003, there has been a close relationship between inflation expectations rising and value outperforming," the analysts, led by Andrew Garthwaite, wrote on Nov. 2. He said positive European earnings revision and "cheap" valuations were among the reasons to back European value stocks. So-called value stocks are thought to be trading at less than their intrinsic value. Within this space, Credit Suisse analysts screened for companies with cheap valuations and positive earnings revisions. The bank's preferred picks include U.K. real estate developer Barratt Developments , London-headquartered mining firm Anglo American , French banking giant BNP Paribas , French pharmaceutical company Sanofi , and recruitment specialist Adecco . 'Dividend aristocrats' Similarly, Credit Suisse noted that dividend stocks have outperformed historically, accounting for 64% and 42% of total returns in the U.S. and Europe, respectively, since 1995. Unlike growth stocks — which are expected to rise at a faster rate than the rest of the market — dividend stocks do not typically deliver significant capital gains, but instead provide investors with a stable source of income. Credit Suisse's basket of preferred dividend plays in Europe include British financial services firm Legal & General , with a projected dividend yield of 6.4% in 2021. German chemicals giant BASF is also on the list, with an expected dividend yield of 5.3% this year. Other stocks on the list include Swiss investment manager Partners Group and analytics firm RELX . Technology giant IBM is one of Credit Suisse's preferred U.S. dividend plays, with an expected dividend yield of 5.2% to the stock for 2021. Energy titan Chevron makes the list as well, with a projected divided yield of 4.7%. Other picks in the 12-stock "dividend aristocrats" basket include Colgate-Palmoliv e, Johnson & Johnson , Emerson Electric and Caterpillar . Collectively, the basket has an average yield of 2.8%, compared to 2.5% for the Stoxx 600.

The logo of Swiss bank Credit Suisse is seen at its headquarters in Zurich, Switzerland March 24, 2021.

Arnd Wiegmann | Reuters