These 8 stocks are set to outperform as inflation mounts, HSBC says

Published Thu, Jan 20 20226:16 PM EST

HSBC has named a number of European stocks that it thinks will do significantly well amid rising inflationary pressures. Across the world, inflation has been on a tear. Consumer prices in the U.K. and U.S. hit multi-decade highs in December and many expect inflationary pressures to linger. "Tight labor markets, supply chain disruptions prolonged by the spread of the Omicron variant of COVID-19 and hard to measure medium-term inflation expectations all present risks that inflation could end up higher than expected in 2022," HSBC's analysts, led by Edward Stanford, said in a research note on Jan. 18. Against this backdrop, HSBC has identified a raft of stocks with strong pricing power and resilience to supply chain disruption. HSBC likes low-cost carrier easyJet , which it says is well placed to benefit from pricing power in the short-haul European airline market. The bank expects the airline to benefit from "vibrant pent-up demand for travel" and highlighted several new revenue streams for the airline. The company is also "more aggressively focused" on enhancing its margins, Stanford said. The bank has a price target of 850 pence ($11.60) on the stock, representing a potential upside of 36% on its closing price of around 625 pence on Jan. 19. German aircraft engine manufacturer MTU Aero Engines also made HSBC's list. The bank noted that the company had demonstrated "good resilience" to supply chain disruptions and rising input costs and should be a "re-opening winner." The company is also able to protect its operating margins by passing on higher materials prices to its customers, Stanford said. Moreover, the company's main markets are also ahead in the recovery process, while its strong focus on the narrow-body fleet has shielded it from the worst of the pandemic, he added. The bank has a price target of 219 euros ($248.50) on the stock, representing a potential upside of 11% on its closing price of around 198 euros on Jan. 19. Medical equipment manufacturer Siemens Healthineers is another of HSBC's picks, with the bank citing stronger growth prospects in cancer care and solid synergies following the acquisition of cancer treatment firm Varian. The bank has ascribed a price target of 85 euros on the stock, which closed at around 59 euros on Jan. 19, representing a potential upside of 44%. HSBC also likes alcoholic beverages producer Diageo , whose "powerful brands" and "premium portfolio" act as a bulwark against inflation, Stanford said, and should underpin continued strong profit growth, he added. The "global leader" should also benefit from the "dynamic" global spirits markets, he added. The bank has a price target of 4,500 pence on the stock, representing a potential upside of 21% on its closing price of around 3,710 pence on Jan. 19. Fashion retailer Inditex is another of the bank's top picks . The company's "best in class" omni-channel operating model ensures higher gross margins, while its retail model insulates the company against rising input costs, the bank said. The bank has a price target of 38 euros on the stock, representing a potential upside of 33% on its closing price of around 28.6 euros on Jan. 19. HSBC also included telecommunications infrastructure firm Cellnex in its list . The bank said the company's growth outlook and potential stands out among its peers, with the bank forecasting double-digit revenue and free cash flow growth into 2026. The firm's strong balance sheet will also support inorganic growth through potential acquisitions, Stanford said. The bank has a price target of 67 euros on the stock, representing a potential upside of 56% on its closing price of around 43 euros on Jan. 19. Tesco is another HSBC favorite, with the bank describing the British grocer as a "good play" on inflation. Stanford said the company — Britain's biggest food retailer — has been able to navigate supply chain issues due to its scale and should see lower cost inflation relative to its peers. The bank has a price target of 350 pence on the stock, representing a potential upside of 22% on its closing price of 288 pence on Jan. 19. HSBC likes German real estate firm Vonovia as a beneficiary of rising replacement costs and transaction prices. The company should also benefit from organic rent growth and platform scale as it expands into other European markets, Stanford said. The bank has a price target of 67.5 euros on the stock, representing a potential upside of 41% on its closing price of around 48 euros on Jan. 19. The bank also likes footwear company Dr. Martens for its global roll-out potential, as the company seeks to double revenue in every market. The firm has successfully grown its profit and profit margins since 2018, Stanford said. The bank has a price target of 550 pence on the stock, representing a potential upside of 68% on its closing price of around 327 pence on Jan. 19.

John Phillips | UK Press | Getty Images

HSBC has named a number of European stocks that it thinks will do significantly well amid rising inflationary pressures.

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