JPMorgan shares 35 European stocks across 10 sectors that you need to own in the rotation to value — including one that could see EPS growth of almost 700% next year

  • With positive vaccine news and macroeconomic support, the big rotation out of growth and into value stocks "has legs," JP Morgan Casenove says.
  • This reversal "could have 3-4 quarter worth of rotation," and would be supported by rising bond yields, the bank said.
  • This is the list of the 35 best European stocks to gain from this trend.
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Optimism that a vaccine against COVID-19 could be rolled out before the end of the year has sent global equities to record highs this past week. In particular, investors have taken profit on the stocks that profited from the pandemic and its work-from-home economy and put their cash into some of the most beaten-down sectors of the equity market, such as airlines, cruiselines and energy companies.

And this is unlikely to be a blip. This rotation from growth stocks into value investments has 'legs', according to a note from JP Morgan Casenove, who have combed through the stocks universe in Europe – which has seen over a quarter of a million deaths from the virus – to find their top picks that could profit from this reversal.

With developments on the vaccine front coming from US drugmaker Pfizer last week and Moderna on Monday, the backdrop is looking a lot more supportive on a longer-term basis compared to the relief-rally in May, JP Morgan strategists said in a note published Monday.

The financial climate has made two points clear, the note said: "the risk-reward for the market is improving" and that "one should rotate out of growth and into value."

Positive vaccine news has "driven a sharp sector reversal, with banks top, and tech near the bottom," the strategists said adding that European value stocks outperformed momentum by as much as 16% last week.

This is the second time JPMorgan has recommended a shift into value stocks. The first time was back in May, But, this time, the bank says, it's different. This trend looks like it's far better built to last, not least because the Federal Reserve is less likely to try to pin down the rise in Treasury yields, as some of the bigger headwinds that were blowing over the summer have now lessened. 

What's changed?

The previous reversal did not last more than a few weeks, the note said, with the May/June rally seeing a move of 26% and 49% in Value to Momentum assets in Europe and the US; however, "the rally quickly fizzled out," the note said.

However, this reversal "could have 3-4 quarter worth of rotation," the strategist wrote, as bond yields and reflationary pressures will affirm the rotation.

JPMorgan has already downgraded its outlook for the eurozone economy and expects the region to contract by 6.4% this year. 

The prospect of further lockdowns across Europe might present a "short term challenge," the strategists noted; however, the positive announcements from vaccine front-runners may "allow the markets to largely look through the further dislocation."

These are the 35 stocks that make up JPMorgan's top picks in the European equity space:

BP

  • Ticker: LN: BP
  • Market cap: €52.8bln
  • Sector: Energy
  • Price Return YTD: -46.8%
  • 2021e EPS: N/A

Lundin Energy

  • Ticker: SS: LUNE
  • Market cap: €5.6 bln
  • Sector: Energy
  • Price Return YTD: -33.55%
  • 2021e EPS: +70%

Kering

  • Ticker: FP: KER
  • Market cap: €77.0 bln
  • Sector: Discretionary
  • Price Return YTD: +6.75%
  • 2021e EPS: 45%

Moncler

  • Ticker: IM: MONC
  • Market cap: €10.3 bln
  • Sector: Discretionary
  • Price Return YTD: +1.57%
  • 2021e EPS: 49%

Volkswagen Pref.

  • Ticker: GR: VOW3
  • Market cap: €78.0 bln
  • Sector: Discretionary
  • Price Return YTD: -12.62%
  • 2021e EPS: 136%

Marks & Spencer Group

  • Ticker: LN: MKS
  • Market cap: €2.7 bln
  • Sector: Discretionary
  • Price Return YTD: +1.57%
  • 2021e EPS: 49%

AXA

  • Ticker: FP: CS
  • Market cap: €44.3 bln
  • Sector: Financials
  • Price Return YTD: -24.71%
  • 2021e EPS: 45%

Royal Dutch Shell

  • Ticker: LN: RDSA
  • Market cap: €98.6 bln
  • Sector: Energy
  • Price Return YTD: -44.46%
  • 2021e EPS: 124%

ING Groep

  • Ticker: NA: INGA
  • Market cap: €28.8 bln
  • Sector: Financials
  • Price Return YTD: -28.49%
  • 2021e EPS: 29%

UniCredit

  • Ticker: FP: CS
  • Market cap: €44.3 bln
  • Sector: Financials
  • Price Return YTD: -24.71%
  • 2021e EPS: 45%

BNP Paribas

  • Ticker: FP: BNP
  • Market cap: €49.7 bln
  • Sector: Financials
  • Price Return YTD: -22.1%
  • 2021e EPS: -2%

NN Group

  • Ticker: NA: NN
  • Market cap: €11.2 bln
  • Sector: Financials
  • Price Return YTD: +1.69%
  • 2021e EPS: 14%

Roche Holding

  • Ticker: SW: ROG
  • Market cap: €250.7 bln
  • Sector: Health Care
  • Price Return YTD: -0.37%
  • 2021e EPS: +8%

Novo Nordisk 'B'

  • Ticker: DC: NOVOB
  • Market cap: €135.5 bln
  • Sector: Health Care
  • Price Return YTD: +9.41%
  • 2021e EPS: +10%

AstraZeneca

  • Ticker: LN: AZN
  • Market cap: €126.3.7 bln
  • Sector: Health Care
  • Price Return YTD: +12.5%
  • 2021e EPS: +26%

Sanofi

  • Ticker: FP: SAN
  • Market cap: €108.4 bln
  • Sector: Health Care
  • Price Return YTD: -3.59%
  • 2021e EPS: +9%

Melrose Industries

  • Ticker: LN: MRO
  • Market cap: €7.9 bln
  • Sector: Industrials
  • Price Return YTD: -33.22%
  • 2021e EPS: N/A

Siemens

  • Ticker: GR: SIE
  • Market cap: €96.6 bln
  • Sector: Industrials
  • Price Return YTD: +6.99%
  • 2021e EPS: +18%

Prysmian

  • Ticker: IM: PRY
  • Market cap: €6.8 bln
  • Sector: Industrials
  • Price Return YTD: +22.29%
  • 2021e EPS: +46%

Smiths Group

  • Ticker: LN: SMIN
  • Market cap: €6.6 bln
  • Sector: Industrials
  • Price Return YTD: +6.61%
  • 2021e EPS: -9%

Airbus

  • Ticker:FP: AIR
  • Market cap: €66.7 bln
  • Sector: Industrials
  • Price Return YTD: +31.07%
  • 2021e EPS: +675%

SAP

  • Ticker: GR: SAP
  • Market cap: €124.9 bln
  • Sector: IT
  • Price Return YTD: -15.46%
  • 2021e EPS: -7%

Adyen

  • Ticker: NA: ADYEN
  • Market cap: €49.9 bln
  • Sector: IT
  • Price Return YTD: +121.75%
  • 2021e EPS: +60%

Infineon

  • Ticker: GR: IFX
  • Market cap: €34.7 bln
  • Sector: IT
  • Price Return YTD: +32.52%
  • 2021e EPS: +54%

ArcelorMittal

  • Ticker: MT: NA
  • Market cap: €14.9 bln
  • Sector: Materials
  • Price Return YTD: -9.82%
  • 2021e EPS: N/A

Anglo American

  • Ticker: LN: AAL
  • Market cap: €29.1 bln
  • Sector: Materials
  • Price Return YTD: -0.25%
  • 2021e EPS: +41%

LafargeHolcim

  • Ticker: SW: LHN
  • Market cap: €26.1 bln
  • Sector: Materials
  • Price Return YTD: -7.88%
  • 2021e EPS: +15%

Ontex Group

  • Ticker: BB: ONTEX
  • Market cap: €0.8 bln
  • Sector: Staples
  • Price Return YTD: -45.01%
  • 2021e EPS: +10%

Reckitt Benckiser Group

  • Ticker: LN: RB
  • Market cap: €55.4 bln
  • Sector: Staples
  • Price Return YTD: +11.37%
  • 2021e EPS: -2%

Nestle 'N'

  • Ticker: SW: NESN
  • Market cap: €282.2 bln
  • Sector: Staples
  • Price Return YTD: +0.9%
  • 2021e EPS: +6%

British American Tobacco PLC

  • Ticker: LN: BATS
  • Market cap: €71.5 bln
  • Sector: Staples
  • Price Return YTD: -12.59%
  • 2021e EPS: +5%

Danone

  • Ticker: PF: BN
  • Market cap: €37.3 bln
  • Sector: Staples
  • Price Return YTD: -25.71%
  • 2021e EPS: +7%

Cellnex Telecom

  • Ticker: SM: CLNX
  • Market cap: €26.2 bln
  • Sector: Telecoms
  • Price Return YTD: +43.54%
  • 2021e EPS: +169%

Enel

  • Ticker: IM: ENEL
  • Market cap: €81.7 bln
  • Sector: Utilities
  • Price Return YTD: +14.55%
  • 2021e EPS: -6%

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