Investment bank Credit Suisse raises its rating on the advertising agency sector and hotels sector to "benchmark" from "underweight," arguing that the stocks in these sectors could benefit from a rise in U.S. consumer spending.
"The fundamentals for U.S. corporate spending look good. Record high free cash flow, near record low leverage, an abnormally old capital stock, an investment share of GDP only slightly above typical recession lows and a record gap between the return on assets and cost of debt. However, the outlook is far less strong in Europe," Credit Suisse strategists write in a note.
European advertising agency and hotels stocks that could do well include advertisers WPP and Publicis , and hotel companies Intercontinental Hotels , Millennium & Copthorne and Starwood Hotels & Resorts .
The Credit Suisse strategists also raise their weighting on the software sector, highlighting stocks such as Germany's SAP , Symantec and security systems company Ingersoll-Rand as top picks.
"We upgrade ad agencies and hotels to benchmark (from underweight) and add to software (our biggest overweight). Advertising is the corporate spending play that tends to turn the earliest in the macro momentum cycle and P/E (price to earnings) relatives do not look expensive. Hotels with U.S. exposure benefit from strong capital discipline among U.S. hotels," states the note.
Credit Suisse adds that it reduces its weightings in the pharmaceuticals and retail sector, and remains with a "benchmark" weighting on cyclicals stocks.
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Keywords: MARKETS EUROPE STOCKSNEWS (EQUITY STRATEGY CREDIT