Wall Street analysts name their top global stock picks amid market turbulence

Published Wed, Feb 16 202211:41 PM EST

Wall Street analysts have named their favorite European stock picks to navigate market volatility amid the looming specter of rising interest rates. Bank of America said it is cautious on the region amid sharper-than-expected monetary tightening, increased growth concerns and a significant slowdown in earnings per share (EPS) growth. This is set to translate into negative returns for stocks this year, the bank's analysts, led by Eric Lopez, said on Feb. 7. The bank has a below-consensus forecast for 430 stocks on the Stoxx 600 by year-end, given softer growth, rising real bond yields and weaker EPS revisions. Despite the cautious macro-outlook, Bank of America still sees significant upside potential at a stock level. Bank of America's top picks The bank is bullish on the oil and gas sector, which it says has an attractive valuation and "a lot of upside." It also expects the company to deliver a "major step up" in shareholder remuneration. The bank likes Shell for being "the most cash flow-generative" among its peers and believes the company can grow its portfolio of low-carbon assets while increasing shareholder distributions. The bank also likes French oil major TotalEnergies for its "higher quality portfolio" and "well-funded balance sheet." The bank sees "attractive upside" to the company's share price and free cash flow yields. Within the financials sector, Bank of America is "very bullish" on banks on the back of rising inflation and a doubling of balance sheets over the last 2 years. "Numbers are moving up, balance sheets are much stronger, and valuation remains very attractive. Growth is real and sustainable, with mortgages picking up, consumer loans in positive territory and corporates back on track," Lopez said. The bank likes HSBC for its "high and sustainable" dividend, revenue growth and strong distributions. Italy's largest bank Intesa Sanpaolo also makes the list for its "solid" capital and funding positions, revenue stability and integration potential. Bank of America likes NatWest , with the British bank "well-positioned" to benefit from the economic recovery in the U.K. given its focus on growth, clear commitment to cost reduction and strong balance sheet, Lopez said. Other favorite picks from Bank of America within this space include pan-European bourse Euronext and British insurer Phoenix Group . Within the aerospace sector, the bank sees "upside opportunities" for Airbus , Montana Aerospace , MTU Aero Engines and Safran . Bank of America also likes Norwegian robotic and software technology firm AutoStore , electric vehicle charging infrastructure firm Pod Point and British engineering firm Spirax-Sarco within the capital goods space, while the luxury goods sector saw the inclusion of LVMH , Prada and Richemont . Other stock favorites from Bank of America include Deutsche Post , ArcelorMitta l, AstraZeneca and ThyssenKrupp . Credit Suisse's top picks Meanwhile, Credit Suisse also named its "top of the crop" European investment ideas where its analysts' estimates and target prices are above consensus and where the stocks have "the least demanding" market expectations. The Swiss bank likes recruitment specialist Hays as a wage inflation beneficiary and has forecast the company to achieve double-digit earnings growth next year. The bank expects the company to return £1 billion ($1.36 billion), or about 40% of its market cap, in dividends over the next 5 years. The company has a strong balance sheet with £400 million in net cash. Beverages giant Heineken also makes Credit Suisse's list. The bank believes the company will benefit from greater investor appreciation of Heineken's pricing power, margin expansion and stronger organic growth. The bank also likes Lloyds Banking as a "scale winner," with higher returns and sustained market share and margins. British consumer goods firm Reckitt Benckiser is another Credit Suisse favorite. The company has made significant market share gains in the U.S. and Europe and the bank expects the company to post mid-single-digit sales growth in 2022. German industrial titan Siemens and British homebuilder Taylor Wimpey round off Credit Suisse's list of top stock picks in Europe. High and secure dividends Meanwhile, Morgan Stanley has a different approach to navigating the challenging market conditions. The bank said dividends will become a larger part of total shareholder returns amid broader concerns around index valuations, tighter monetary policy and the probability of higher-for-longer market volatility, The bank's screen for stocks with attractive yield and "very low risk" of a dividend cut turned up Austria's Erste Group Bank, Carrefour , Swiss building materials maker Holcim , Societe Generale as well as British telecommunications firms BT and Vodafone .

A Wall Street sign is pictured at the New York Stock exchange (NYSE) in New York, March 9, 2020.

Carlo Allegri | Reuters

Wall Street analysts have named their favorite European stock picks to navigate market volatility amid the looming specter of rising interest rates.