Goldman Sachs' top stock picks in Europe include three with over 100% upside

Published Thu, Mar 30 202311:59 PM EDT

Fears of contagion in the global financial system and uncertainty over interest rates have weighed on investor sentiment in recent weeks, but opportunities remain amid the market volatility, according to Goldman Sachs . "The macro backdrop remains uncertain … That said, we see scope for alpha opportunities with returns dispersion across sectors," Goldman's analysts, led by John Sawtell, wrote in a Mar. 28 note. Within the equities space, Goldman believes the current investment climate lends itself toward European stocks — despite an investor preference for U.S. equities. The bank prefers companies in value sectors that pay dividends, as well as select defensive and growth stocks in the market. It also expects companies with stronger balance sheets to fare better in the current environment. Out-of-consensus buys The bank identified a raft of out-of-consensus stock picks, where each stock is rated "buy" by fewer than 50% of analysts covering them. Swedish mining equipment manufacturer Epiroc makes the list, given the bank's bullish long-term outlook for mining spending and the company's "best-in-class" margins and returns. The bank also likes Spanish telecommunications firm Telefonica for its "improving" revenue growth prospects and "better" profitability. Deutsche Bank makes Goldman's list too. Shares in the beleaguered bank have fallen 22% over the past month amid fears that it could be the next Credit Suisse , although analysts have been quick to point out that its financial position looks strong . The stock has since pared some losses, but remains buy-rated by just 48% of analysts covering it. Goldman gives Deutsche Bank potential upside of 114%. Value buys with earnings upside Goldman also screened for buy-rated stocks that are trading at attractive valuations relative to their own history and the market, and where the bank's analysts see upside risks to consensus earnings estimates. Oil major BP is one such stock. Goldman believes BP is "on the cusp" of delivering one of the industry's strongest pipelines of new oil and gas projects, as well as benefiting from positive momentum in gas trading. This should support a double-digit free cash flow yield in 2023, the bank added. Shell and Repsol are among the other energy names on make the list, while Mercedes , Porsche and BMW are the only automakers that turned up on the screen. UBS , which recently swooped in with a rescue deal for embattled Credit Suisse, is also on Goldman's screen, with potential upside of 104%. The bank gave British telecommunications firm BT Group potential upside of 101%. — CNBC's Michael Bloom contributed to reporting