Investors have made it through the first half of 2020. The second half looms with plenty of questions about how the Covid-19 outbreak will evolve and affect global economies.
For strategists at London-based J.P. Morgan Cazenove, the path forward is clear: Stick with defensive and technology stocks. The rotation into cyclical stocks, seen in May and June, is all but over, according to a team led by Mislav Matejka, the bank’s head of European equity strategy.
Cyclical stocks tend to perform better as economies recover, which is one big strike against them. Matejka and the team say the labor market will struggle the second half of the year—and that will weigh on consumer spending. That leaves defensive and technology stocks, which he says are “still attractively priced.”
The strategists expect the U.S. to lead as a region in the second half, but still like a whole crop of European stocks in the above categories. For example, German business-software maker
(ticker: SAP), whose products, the team writes, are “mission critical for enterprises across the world,” and which has “strong recurring revenue of nearly 70%.”
Another pick is Dutch semi-equipment maker
(ASML), a key beneficiary of a shift to extreme ultraviolent lithography, which helps create more powerful, compact chips. This will help protect it from the downturn in weaker consumer-end markets, says the bank.
Within staples, J.P. Morgan strategists point to U.K.-based
r (RB.UK) for its “growth dynamics, resilient margins and strong top and bottom line growth.” Swiss food giant
(NESN.Switzerland) makes the cut for “superior top-line performance” and its portfolio management, along with solid shareholder returns.
Matejka and his team like Nestlé’s Paris-based rival
(BN.France) for a defensive portfolio that will help hold it up in the current tough economic climate, while
British American Tobacco
(BTI) also makes the cut for its combustibles portfolio and “undemanding valuations.”
Health-care picks include
(ROG.Switzerland) and the U.K.’s
(AZN)—both for strong drug pipelines—while Denmark’s
(NVO) got the nod for long-term upgrades potential, driven by positive late-stage trial data on some of its drugs.
The bank’s utilities picks include
(ENGI.France), both set to benefit from the EU’s Energy Transition plans, as well as the U.K.’s
(NGG). The last is a favorite of the investment bank for sustainable dividends and the fact the country’s regulatory framework will help protect it from pandemic fallout.
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