'Conviction sell': UBS says avoid these global stocks amid rising headwinds

Published Thu, Apr 28 202212:43 AM EDT

UBS is more bearish than Wall Street on a number of stocks, and cautions investors against owning these companies. Investors are bracing themselves for a possible recession amid runaway inflation, slowing growth and the prospect of aggressive tightening by the U.S. Federal Reserve. Against this backdrop, UBS has identified several "conviction sell" stocks which it says carry more risk than reward. The bank's analysts also have lower earnings and price target forecasts on these stocks relative to consensus. German personal care goods manufacturer Beiersdorf is one such stock, with UBS expecting the company to experience "persistent operational underperformance" relative to its peers. "Whilst we applaud Beiersdorf's decision to put more emphasis on critical areas such as e-commerce, China and innovation, we believe that in the absence of large-scale M & A and drastic margin reset, the group's transformation will prove relatively slow and vulnerable to additional exogenous shocks," UBS' analysts, led by Michele de Souza, said in a research note on Apr. 25. Swedish mining firm Boliden also makes the bank's list. UBS noted that the company has been a beneficiary of higher metal prices, improving treatment costs, weakness in the Swedish krona and lesser exposure to rising energy prices relative to its peers. But the bank warned that these tailwinds are unlikely to continue into next year. The company is also expected to experience significant free cash flow yield compression relative to its peers, which UBS says will limit the potential for excess cash returns. British distribution firm Bunzl also makes UBS' "conviction sell" list. The bank noted that the company has benefited from higher-margin orders during the Covid-19 pandemic, but it expects Bunzl's mix to shift toward lower-margin, larger and more financially resilient customers going forward. The bank believes the company's organic earnings are unlikely to rebound as much as its peers and is "skeptical" about the outlook for margins. It noted that while the company could grow its earnings per share on through M & A, this could be detrimental to its return on invested capital. Read more These low volatility stocks are proving to be resilient in a wild 2022, Barclays says Morgan Stanley says stay disciplined amid volatility, and names 'cheap' global stocks to buy Wall Street banks name their top global stock picks to navigate market volatility UBS also rated Italian luxury goods company Salvatore Ferragamo a "sell," with the bank expecting 2022 and 2023 to be the "years of transition" for the company in what is likely a "lengthy turnaround." The bank expects the brand to continue to struggle due to weak brand momentum, slowing trends in key markets, as well as the unlikely return of travel retail. The bank's earnings expectation for the firm is 20% below analysts' consensus for 2022 and 2023, de Souza said. Belgian materials technology firm Umicore is another stock rated "sell" by UBS. The bank has forecast a 7% decline in earnings for the firm into 2025 — a more bearish view compared to consensus, which expects the company to post flat earnings growth. UBS also rated Swiss pharmaceutical firm Roche a "sell," with the bank's EPS growth forecast of 5% over the next five years falling short of the consensus estimate of 8%. The stock is currently trading above the sector average but is likely to struggle to deliver sector-like growth, de Souza said. Rounding off UBS' list of "sell" ideas are Swiss dairy products company Emmi , Dutch trading firm Flow Traders , British property developer Hammerson , Belgian semiconductor firm Melexis , Spanish energy firm Naturgy , reinsurer Swiss Re , and banking software solutions provider Temenos .

UBS reports its latest earnings

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UBS is more bearish than Wall Street on a number of stocks, and cautions investors against owning these companies.