Analysts at JPMorgan and HSBC have picked global stocks they say provide pockets of opportunity in a volatile market. HSBC’s picks all have upside of at least 20%. While a poor financial outlook and the war in Ukraine are making it difficult for companies, there are signs of a normalization of economic activity, according to HSBC. In a June 9 note to investors, the bank assessed stocks to identify the “outliers,” using three types of cashflow analysis. “For most Industries, companies with high cash scores currently have outperformed those with low scores over the last three years,” the analysts led by Edward Stanford said. The bank produced a list of buy-rated names in its “most attractive stocks” basket, a shortlist including French grocer Carrefour , which it gave a potential upside of 21.8% and power company Engie , with 27.5%. Also on the list are utilities firm Veolia , with a potential upside of 39.3%, and eyewear giant EssilorLuxottica , with a potential upside of 37.8%. Read more Not all cheap stocks are always value traps, UBS says. Check out these opportunities Crypto investments will be a ‘big zero’ in the end, says value investor Mohnish Pabrai How to invest behind the car of the future, according to Bank of America The upside is the percentage difference between HSBC’s target price and the stock’s current share price, and the bank said it expects it to take six to 12 months for the market price to reach the bank’s target price. “Our analysis is a good first step to spot companies with valuations and cash flow profiles that are out of kilter with other sector peers,” the analysts added. The bank looked at a variety of measures including free cashflow yield and operating margin, which are used by investors to assess a stock’s attractiveness and overall profitability. JPMorgan’s picks JPMorgan, meanwhile, identified “pockets of opportunity” in a June 7 note, naming small- and mid-cap stocks it is overweight on, in sectors including infrastructure, travel and materials. While the bank remains “cautious,” given macro factors such as a fall in consumer confidence and concerns over inflation, its picks offer “plenty of alpha,” it said. “How to position? Stick to our relative trades which offer the visibility that the broader market simply doesn’t have,” the analysts stated. On infrastructure, the analysts said: “At a time when the macro offers little visibility and it is perhaps hard to see what will propel growth over the coming years, one part of the economy seems to enjoy the prospects of strong and sustainable demand… [which is] infrastructure.” The U.S. and China are both heavily investing in infrastructure, while Europe is spending money on the so-called green economy. JPMorgan’s sector picks include equipment manufacturer Andritz for its green portfolio, which the bank said is set to benefit from Europe’s move away from energy imports, as well as Spanish construction firm ACS , which the analysts like for its exposure to U.S. infrastructure spending. When it comes to travel and leisure picks, the industry “appears oversold,” JPMorgan said, while “leisure is a spending priority for consumers going into the summer.” Its picks include booking website On The Beach , budget airline Jet2 and hotel group NH Hotels . Materials names JPMorgan likes include steelmakers SSAB and Acerinox , both described as having their strongest balance sheets in recent history. “The [market] is still missing the value creation opportunity that many materials stocks are facing due to high commodity prices,” the analysts wrote of the sector.
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