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Citi: The 13 big buys in Europe, the opportunities in the ‘dives’ and the estimates for Greece

Her Eleftherias Kourtali

Rising bond yields and weakening earnings per share (EPS) are likely to keep European stocks under pressure in the coming months, according to Citigroup. However, she points out that the targets she has set based on her calculations, indicate that the pan-European Stoxx 600 index will increase slightly by 4% by the end of 2022 and compared to current levels.

In this context, Citi identifies the 13 major buyers from Europe which it estimates will offer outperformance to investors, while at the same time re-improving its estimates for Greek stocks. It also states that its index, the European Bear Market, continues to send a signal for buying in the “dip” of shares (buy the dip).

Fears of rising interest rates and falling QEs have not derailed the upward trajectory of international markets, the US bank notes, but rising real yields (ie, bond-adjusted yields) could pose a significant challenge for shares, given the close relationship with valuations, especially growth stocks. Value stocks, especially in the UK, look less vulnerable, Citi estimates.

The messages about the termination of QE and the expectations for interest rate increases have led the yields of 2-year bonds to higher levels since the end of September, however, the shares have avoided the upheaval and the sell-off. The good picture of listed companies’ financial results helped, although the dynamics of EPS may weaken as the global economy slows, according to Citi.

More analytically, as the American bank notes, the average estimates of analysts internationally place the increase in European earnings per share (EPS) at 7% in 2022. Given the recent downgrades in the growth of the GDP of the euro area, Citi believes that the increase by 5% may be more realistic. Analysts may turn to downgrades for the first time since July 2020, especially in mainland Europe, he estimates. The MSCI Europe Index is currently trading at a 12-month EPS at 17x, above the 14x long-term average, but stocks still look cheap against bonds.

The key issues for shopping and big buys

Citi estimates that international bond yields are expected to rise further in the coming months, leading to further rotations in financial sector stocks and “value” stocks. At the same time, weak Chinese growth and declining manufacturing PMIs will hit the commodity industry, while ESGs will increasingly drive the behavior of European companies. According to Citi, these are the key issues for the markets in the near future.

In this context, it recommends overweight positions in the financial-banking, communication services and healthcare sectors. It is underweight in the field of basic consumer goods, utilities and information technology.

At the same time, Citi identifies the big buys from Europe, ie the 13 stocks that have the strongest growth prospects for the next 12 months. These are AstaZeneca, Aviva, Capgemini, Faurecia, Iberdola, Lloyds, Prosus, Royla Mail, Sanofi, Tesco, UBS, Vodafone and Volvo.

Citi: The 13 big buys in Europe, the opportunities in

The target is 4,900 units for the S&P 500

In terms of the US market, Citi sets a new target for the S&P 500 at the end of 2022, at 4,900 units. This implies a revaluation of 6.6% from current levels, suggesting a generally constructive view, albeit below the historical average annual returns of recent years. The S&P 500 has rallied around 6% since the beginning of October 2021. So the main story for Citi is the hunt for the “dive” of the market until the end of this year.

Estimates for Greece

In its report, Citi also presented its updated estimates for international market valuations. As far as Greece is concerned, the American bank has once again improved its forecasts, with the estimated increase in the profitability of Greek listed companies being placed even higher, while until recently, in fact, it estimated that it would be negative.

More specifically, it now sees earnings per share expected to increase by 1.5% this year (including banks), up from just 0.5% expected a few weeks ago and down 0.5% year-on-year on at the beginning of the month, while in 2022 it estimates that they will increase by 25%, which will be the highest increase in Europe, but also in relation to the average in emerging markets, developed markets and the USA.

Thus, he estimates that the profitability of European companies will increase in 2022 by 5.8%, of emerging markets by 5.5%, of developed countries by 7.1% and of American companies by 6.9%.

The estimated P / E index in the Greek market for 2021 is set at 12.1x, while for 2022 it will move to 9.6x. By comparison, the P / E in the US market, from 23.5 this year, will move to 21.8 in 2022, while in Europe from 16 this year to 15.1 in 2022.

Finally, at the level of 3.7%, the estimated dividend yield of Greek shares is formed, above the average in Europe, USA, global markets and emerging markets, which is placed at 3%, 1.3%, 1.8% and 2.8% respectively.


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