Credit Suisse names its top global stock picks to beat rising inflation

Published Thu, Dec 16 20216:29 PM EST

Credit Suisse has identified a raft of global stocks that have historically outperformed when inflation rises, saying that they could well do so again in this current environment. U.S. inflation rose at the fastest pace since 1982 in November, climbing 6.8% from a year ago while inflation hit a 25-year high in the euro zone in the same month. Inflationary pressures are also starting to build in some of Asia's largest economies, particularly in China and Japan . Credit Suisse screened for stocks which have historically outperformed when inflation rises. These stocks have high correlation with inflation expectations, the bank's analysts, led by Andrew Garthwaite, said in a research note on Dec. 14. The basket is overweight stocks in the financial services sector, with the sector represented in 12 out of 27 names in the basket. Credit Suisse's picks within this space include ING , BNP Paribas , Barclays , UBS , Morgan Stanley , Goldman Sachs , Citigroup and Synchrony Financial . Other companies on the list include German chemicals firm BASF , chipmaker Infineon , Swiss watchmaker Swatch , Danish shipping firm Moller-Maersk , as well as steel producers Steel Dynamics and Nucor . Other inflation plays Credit Suisse's other favorite inflation themes include commodities, U.S. small-cap companies, banks, companies with inflation-linked pricing structures and stocks with strong pricing ability. Within commodities, Credit Suisse is overweight on the mining sector, which it calls an "inflation hedge." with some mining names having become "exceptionally cheap." The bank added that the sector has a "strong structural story," with rising demand for metals as the world tries to transition to a zero-carbon environment. The bank's "preferred exposures" are Antofagasta and First Quantum for copper, Anglo American for platinum, Rio Tinto and Tianqi Lithium for lithium and Alcoa for aluminum. The bank also likes Norsk Hydro for its use of clean energy to produce aluminum. In addition, small caps tend to outperform as inflation expectations rise, given their "strong positive correlation," the bank said, noting that current valuations look "attractive." The bank compiled a list of U.S. small caps with more than 30% potential upside to their stock prices and which have positive earnings revisions. The bank's screen turned up United States Steel , Cushman & Wakefield , Brigham Minerals , Ovintiv and Atkore as the stocks with the highest potential upside, while HollyFrontier , Hilton Grand and EQT made the list with the highest three-month earnings per share outlook — an important metric used by traders to gauge the value of a stock. Meanwhile, banks should benefit from an acceleration in loan growth as excess savings fall, Garthwaite said, noting that banks still look "cheap" while relative earnings revisions remain "very strong." Credit Suisse's top picks within the financial services sector are Lloyds , Societe Generale and UBS . Companies with inflation-linked pricing structures such as escalation clauses are also likely to benefit in an inflationary climate, the bank said. Its list of overweight-rated stock picks includes lift-maintenance firms Kone and Schindler and financial technology providers Fiserv and Fidelity National Information Services . Other stocks that turned up on Credit Suisse's screen include Capitol Health , C K Infrastructure , Power Assets , Atlas Arteria , Transurban and BTS Rail . Stocks with structural pricing power will also look attractive if central banks intervene to curb inflation, the bank noted. The bank's list of European stocks with pricing power include British home improvement retailer Kingfisher , Airbus , Heineken , British analytics firm Relx and German meal-kit firm Hellofresh .

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

Arnd Wiegmann | Reuters

Credit Suisse has identified a raft of global stocks that have historically outperformed when inflation rises, saying that they could well do so again in this current environment.