Bank of America (BoA) recommended investment in bank stocks, insurance stocks, and energy stocks such as Barclays in United Kingdom and BNP Paribas in France in preparation for a possible economic downturn in Europe.
According to CNBC on the 26th (local time), BoA picked Belgium’s KBC Group (insurance), Italy’s Intesan Paolo (bank) and Eni (energy), Finland’s Nordea Bank (bank), Spain’s Leppsol (energy), Britain’s Barclays (bank) and Aviva (insurance), France’s BNP Paribas (bank).
The reason for the recommendation is the possibility of a recession in Europe. According to Eurostat, the European Union’s statistical body, the eurozone (20 countries using the euro) has already entered a technical recession. This is because the confirmed growth rate of gross domestic product (GDP) in the first quarter of this year was -0.1%, following the fourth quarter of last year, growing negative (-) for the second consecutive quarter.
The Eurozone business sentiment index released last month stood at 0.19, the lowest since March 2021. Through its own analysis model, the BoA assessed that the economic condition in Europe has entered a recession since the second quarter of 2020.
In general, during the economic downturn, large companies with better profit-generating capabilities than growth and stable financial structures have better stock price defense. BoA-selected companies have a market capitalization of more than 5 billion euros, and 12-month advance cash returns are higher than the industry average.
In addition, the BoA analyzed that companies that provide cash to investors through dividends or treasury stock purchases are drawing attention during the recession. For the first time since 2011, dividend earnings have outperformed corporate bond earnings, according to the BoA.
The 12-month forward cash return is the ratio of the company’s expected cash to shareholders over the next year to the current share price. KBC Group’s cash return is 14.2%, Intesa San Paolo is 13.5%, and Eni is 13.4%. Barclays is 12.5%, BNP Paribas is 12.3%.
