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These countries are trading cheap according to JPMorgan
′′[The] Eurozone backdrop appears to be very encouraging in terms of vaccinations, growth, and policy support. The Eurozone is experiencing a strong earnings rebound and is trading at a low valuation… “The Recovery Fund began to be implemented in the summer, and the labor market is resilient,” JPMorgan analysts led by Mislav Matejka wrote in a research note published on Oct. 4.
“This year, the Eurozone is one of the best performing regions.” We upgraded Eurozone late last year, taking advantage of [its] sharp underperformance,” the analysts said, adding that they prefer stocks that operate on a domestic rather than international basis. The European Union has raised over $900 billion to assist the bloc in its recovery from the coronavirus pandemic.
“Japanese equities continue to trade at record low valuations,” they said, adding that Japanese stock valuations “appear attractive.”
“We believe that cash-rich balance sheets will help Japanese corporations withstand the worst effects of the crisis,” the analysts wrote.
JPMorgan is underweight in both markets.
Analysts named several stock baskets for Europe that play on various themes. It chose airport operator Flughafen Zurich, billboard company JCDecaux, tire maker Pirelli, airline Ryanair, and fashion brand Hugo Boss for its “JPM continental reopening basket.”
Adidas, meal company HelloFresh, insurance company Admiral Group, pharmaceuticals firm Roche, and French grocer Carrefour were among its picks in a basket of “COVID-19 positive impact plays” that benefited from people working at home during the pandemic. Such picks “could offer potential short opportunities,” according to the bank. Short selling is a strategy used by investors who borrow a stock and immediately sell it, betting that the price will fall. When this occurs, they purchase the stock and resell it to the lender, making a profit.
CaixaBank, Poste Italiane, Merlin Properties, and Commerzbank were among the stocks recommended in “JPM Eurozone Domestics.” “We believe that as relative growth trends in the Eurozone continue to firm up, domestic stocks will do better as well,” the analysts said.
Infrastructure investments in the United States and Europe are expected to benefit several stocks, according to JPMorgan. “The infrastructure bill announced in the United States could be significant in magnitude and a more targeted way of supporting the economy,” analysts predicted. Democrats hope to have President Joe Biden’s infrastructure bill passed by the end of the month.
According to JPMorgan, some European companies operating in the United States are likely to benefit from such a plan, including equipment rental company Ashtead Group, Deutsche Telekom, building materials company CRH, and cable manufacturer Prysmian.
JPMorgan chose “Target Stocks for October” in a separate research note seen by analysts. Suntory Beverage and Food is on the list because it is “entering a phase of structural profit growth” and is planning to restructure, according to analysts in a note dated Sept. 30. It also chose Mitsubishi UFJ as its top banking pick and stated that dividends will likely be increased over the next three years. Tokyo Tatemono, a real estate firm, is also on the list for its “path to stronger profits.”
Indian best energy stocks
As of Thursday’s close, US crude was up more than 15% in a month, while high-grade thermal coal prices continued to rise to new highs. Higher coal prices have compelled Indian power companies to drastically reduce their coal imports, contributing to a worrying shortage of the commodity.
While higher oil and coal prices are likely to have a limited immediate impact on inflation in India, due in part to government tax buffers, they are expected to have earnings implications for certain industries and stocks, according to a Sept. 29 report from a U.S. investment bank.
5 stocks that could rise in value
Bank of America has identified five stocks that will benefit from higher oil and coal prices.
The bank has a “buy” call on state-owned Coal India, which produces more than 80% of the country’s coal. According to Bank of America, the stock could benefit from rising import coal prices as domestic spot prices in e-auctions for the commodity rise. India distributes coal As a result, Hindalco, an Indian aluminum and copper manufacturer, is also on its “buy” list. According to the bank, Hindalco’s earnings could increase by 1.7 percent for every $50 per ton increase in LME prices.
Tata Power, an electric utility company, could “benefit from higher profits in its Indonesian coal mine [joint ventures],” according to Bank of America.
In other news, a rise in diesel prices could help the state-owned container port operator and cargo carrier Container Corporation of India gain market share from “road-based logistic operators,” while Oil and Natural Gas Corporation may benefit from higher crude price realization.
Top 10 Asia stocks according to BoA
Bank of America’s list includes some of Asia Pacific’s most well-known companies, as well as exposure to a wide range of industries. The bank rates all of them as buy.
“We present our new list of ten short-term stock recommendations among Asia Pac companies we cover, based on our view that these stocks may have the most significant market and business-related catalysts in the quarter ahead,” the analysts, led by Christine Tan, wrote in a note dated Sept. 29.
Olympus, a manufacturer of precision equipment, has the highest potential upside among the bank’s stock picks, at 45 percent. The global market leader in gastrointestinal endoscopes is undergoing a restructuring, which analysts believe will result in “earnings improvement.” The bank expects the company to grow by 18 percent through 2024, thanks to “multiple revenue drivers.”
Taiwan-listed According to Bank of America, Unimicron, a printed circuit board manufacturer and Apple supplier, has a 42 percent potential upside. The bank anticipates that the company will benefit from a prolonged supply squeeze as well as stronger growth in the average selling price of its ABF substrate. Analysts believe the company’s “higher-than-peers capacity increase” will also bode well in the face of stronger structural demand growth for the ABF substrate. ABF substrate is a critical component in the manufacture of semiconductors.
E-mart, South Korea’s largest discount retailer, is favored by the bank for its “ongoing earnings turnaround momentum and growth potential from e-commerce business in Korea with SSG.com and eBay Korea.” In June, E-mart paid $3 billion for a controlling stake in eBay’s Korean business. Analysts at the bank added that same-store sales growth momentum is expected to “remain in the positive in 2021,” with a potential upside of 33 percent.
The bank went on to say that as e-commerce continues to boom in Southeast Asia, Singapore-based internet company Sea is best positioned to capitalize on the trend, thanks to the dominance of its online marketplace Shopee. It believes the company is best positioned to benefit from the region’s growing affluence, and that strong cashflow from the company’s gaming platform Garena will allow “Sea to invest in new businesses that will help unlock value in the future.” Other advantages for the company include its expansion into Brazil and opportunities through its $1 billion Sea capital fund, according to the analysts.
They are also optimistic about Longfor Group, a Hong Kong-listed real estate developer, because of “its solid execution, reputable brand name, and proven track record.” The company has a “industry-leading growth outlook,” according to the analysts, as well as a disproportionate exposure to the “most fast-growing non-development property businesses,” which are expected to grow by 30% over the next few years.
Sony of Japan also made the bank’s list, with the bank’s conviction being driven by the company’s medium-to-long term earnings growth as a result of its diverse businesses. According to the analysts, the company’s recent acquisitions to grow its content business could help boost Sony’s valuation and offer potential cross-content synergies. According to Bank of America, the stock has a 25% potential upside.
The other four stocks on BofA’s list of top Asia picks for the fourth quarter are Indian conglomerate Larsen & Toubro, Mahindra Finance, also based in India, Japanese camera and optics firm Nikon, and Chinese consumer electronics giant Xiaomi.
Top 10 energy stocks
So far this year, U.S. oil prices are up about 68 percent; natural gas prices are up more than 115 percent; and stocks of oil and gas producers are up about 51 percent. Nonetheless, clean energy shares have lagged this year.
Alternative energy stocks have been outperforming since the beginning of October, though there was some profit-taking in the group on Thursday. The prospect of increased government support, as well as other factors surrounding specific names, has boosted the sector. However, the prospect of higher oil and gas prices has also been a major factor driving the stock market in recent sessions.
For example, the SPDR S&P Kensho Clean Power ETF is down 7% for the year, but it is up 6.5 percent in the last five trading sessions. First Solar, Tesla, and Sunnova Energy International are among its top holdings.
The Invesco Solar ETF, TAN, is down 14.9% for the year, but it has gained more than 10% in the last five sessions. HJEN, the Direxion Hydrogen ETF, is also up more than 10% in the last five days. Plug Power and Ballard Power Systems are among its top holdings.
According to BTIG’s Julian Emanuel, recent gains may be due in part to the perception that the Biden agenda on clean fuels will be implemented. “However, we would also argue that it is for the same reason that oil prices rose in response to rising natural gas prices,” said Emanuel, BTIG’s head of equity and derivatives strategy.
“Whether you’re looking short-term, medium-term, or long-term, you’re looking for energy substitutes, where the supply story across many types of fuels will be challenged over the next couple of years,” he explained. “It’s not surprising that those stocks have been rising. Further progress in those names is a function of both advancing a legislative agenda and rising energy prices.”
Oil and gas prices have been rising all year, but there have recently been concerns about natural gas and coal shortages in Europe and Asia. Natural gas prices in the United States have risen less dramatically, owing to concerns that supply in the country is below normal for this time of year.
Prices are surging to record highs in Europe and Asia, fueled by fears that there will not be enough supply, especially if the winter is cold. As liquefied natural gas shipments went to Asia, Russia cut back on some pipeline gas, and wind energy did not deliver what was expected, Europe failed to store enough gas.
Consumers, such as power companies and manufacturers, are expected to switch to oil from gas in Europe and Asia, which could help drive up oil prices. The United States is the largest producer of natural gas, which helps to insulate American consumers to some extent, even though the United States exports liquefied natural gas to other parts of the world.
Recent stock market gains in everything from solar to hydrogen stocks could be a sign of things to come, especially as the world transitions to more renewable energy sources while demand for oil and gas remains stable. According to analysts, clean energy stocks have risen more frequently as a result of government support than as a result of supply shortages and price pressures in traditional commodities.
One reason, according to Biju Perincheril, energy analyst at Susquehanna, is that the clean energy industry has matured. “The renewable sector was not profitable on its own, but they are now, so you can sort of look at the economics and say that traditional energy being expensive is actually a benefit for alternative energy names.” “I don’t believe you would have made that case as clearly before,” he said.
Perincheril anticipates that investors will soon focus on the group’s earnings, and there are headwinds from supply chain shortages, cost increases, and uncertainty surrounding imports and tariffs. However, he believes that demand is strong, and that the group now has more appealing valuations than it did previously. The group may also benefit as Congress considers reconciliation legislation, which is expected to include provisions for clean energy, he said.
“I don’t think the surge in gas and oil prices will derail the transition to renewables, or the need to transition to renewables.” The question is how to make it more resilient and dependable. “This is where some of the subsectors, such as energy storage, may see some support,” he said. “Green hydrogen may gain traction.”
Stem Inc is one of his favorite stocks in the storage sector. He also likes First Solar because it manufactures in the United States and is constructing a second plant.
“In my opinion, traditional commodity strength is a long-term positive for alternatives.” “You’re going to look at gasoline prices if you’re deciding whether to buy an EV or a combustion engine car,” he said.
“That’s already reflected in higher prices for traditional energy names…for renewables, I think it’ll be a longer-term tailwind,” he said. “I believe it is a long-term positive for renewables.” It’s a chance to reach the net zero goal. Much more investment is required, and I believe government policies are already moving in that direction.”
According to analysts, they are being selective in the clean energy space. “These are volatile names.” “They ramped up out of this world by the end of 2020,” said CFRA energy analyst Stewart Glickman. “They began to fall at the start of 2021. “I wonder if this is a foreshadowing of the sticker shock that will befall people who heat their homes with fossil fuels.”
Glickman stated that he is agnostic about the clean energy sector as a whole, but he likes some names. Enphase, a solar inverter company, is one of them. “They’re the market leaders in residential micro inverters.” It is experiencing some cost pressure, but this is common across the board. “They’ve been gaining market share, and we like where they’re at,” he explained.
Plays from the past
Glickman also follows oil and gas companies, and he sees the sector as appealing, despite this year’s strong gains. The XLE Energy Select Sector SPDR ETF is still trading below its January 2020 high. Even before Covid slammed oil prices in 2020, energy stocks were unpopular, particularly among investors interested in environmental, sustainable, and governance, or ESG, investing.
However, analysts believe the stocks still have room for growth and do not reflect the current price of oil, which is above $80 per barrel for the first time since 2014.
“In the short term, I would say I prefer upstream oil and gas.” “When I look at any of these names, I look at everything with a 12-month time horizon,” Glickman explained. “I believe renewables will be a much larger piece of the pie in the medium to long term, but I believe it will be a slower build than perhaps people would like.” In the short term, I believe people will do whatever they can to keep the lights turned on and the heat on. That, I believe, will lead to a greater reliance on fossil fuels. “Fossil fuels will continue to play an important role in daily life.”
Perincheril also follows oil and gas names and is bullish on some of them, including Devon Energy. He expects the sector to continue focusing on capital conservation rather than spending to dramatically increase output, as it might have done in the past when oil prices rose.
Oil companies have been deferring production increases in order to reinvest capital in dividends and share buybacks.
“Investors are putting a lot more pressure on companies to hold the line and not increase activity,” Perincheril said. “I don’t see the supply response that we’ve seen previously.”