Wall Street banks think these global stocks will benefit if stagflation takes hold

Published Mon, Mar 21 202210:29 PM EDT

Wall Street analysts believe the global economy is on the cusp of stagflation — and some think it's already arrived . Despite this, Bank of America and Jefferies think certain stocks could benefit from the phenomenon. Here are their top picks in Europe. Stagflation refers to the toxic combination of persistently high inflation and stagnant economic growth. Bank of America said on Mar. 16 that over 60% of global investors believe the global economy will be in stagflation over the next 12 months — the bank's highest reading since Sept. 2008. While Jefferies noted on Mar. 21 that its lead indicators were "flashing stagflation." And last week, top Goldman Sachs strategist Christian Mueller-Glissmann told CNBC that the economy was already dealing with " stagflation ," given the Russia-Ukraine conflict, leading to a heightened risk of poor real returns. Against this backdrop, Bank of America screened for European stocks that are most likely to outperform in a stagflationary environment. These stocks are well positioned to withstand rising input costs due to their pricing power, according to the bank's strategist Paulina Strzelinksa. Within the healthcare sector, the bank's top picks are Glaxosmithkline , Merck , Denmark's Alk-Abello and Novozymes , Sweden's Getinge and Switzerland's Vifor Pharma . Bank of America also likes Norway's Equinor , Sweden's Lundin Energy , France's TotalEnergies as well as Shell within the energy space. Rounding off the list are British American Tobacco , British alcohol producer Diageo , British supermarkets group Sainsbury's , Nokia and technology firm STMicroelectronics . Jefferies' picks "Cash machines" and quality plays are some of the best performers in stagflationary periods, Jefferies' analysts, led by Desh Peramunetilleke, said in a note on Mar. 17. The bank said that dividends have always been a key focus area for Europe, driven by investors seeking steady income. Dividend growth has also become a far more important theme, given the general lack of growth in Europe, Peramunetilleke added. The bank's screen for "cashflow machines" that are likely to outperform during stagflation-like periods turned up Roche , Swiss laboratory testing services firm SGS , oil major BP , French inspection and certification firm Bureau Veritas , chemicals distributor Brenntag and payment firm Edenred . Jefferies also screened for companies with "rock solid" dividends. The stocks in the screen include LVMH , Richemont , French pharmaceutical firm Sanofi , French industrial gases supplier Air Liquide , Swiss telecommunications provider Swisscom . The list also includes British defense contractor BAE Systems , Swedish industrial conglomerate Assa Abloy , French advertising group Publicis and British quality assurance provider Intertek .

A street sign for Wall Street is seen in the financial district in New York, November 8, 2021.

Brendan McDermid | Reuters

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