BofAML introduces list of 10 short-term stock recommendations for 4Q for cos. under coverage, based on views of market and business-related catalysts that may affect stocks in the quarter ahead.
- BUYS
- Auto Trader: attractive valuation, structural growth, margin gains, strong FCF generation, further potential upside from increased share buybacks/dividends
- Carrefour: recovery not yet fully delivered, cash flow profile to improve; upcoming IPOs of Brazil, Carmilla catalysts for mid-term
- Deutsche Telekom: solid growth top line, FCF profile within telcos driven by U.S.; returns, FCF to improve
- Ferragamo: attractive valuation; new CEO, margin upside, potential brand turnaround to drive earnings growth above peers
- Nokia: attractive cost savings, cash return story; several potential upside catalysts in 4Q including first Capital Markets Day since the Alcatel acquisition on Nov. 15
- Tullow Oil: self-help deleveraging story with peak capex incurred in 2015/2016; stock overhangs to unwind over time, dividend and buyback potential
- UNDERPERFORMS
- Luxottica: waning brand momentum, loss of distribution control among headwinds set to drive disappointing earnings growth and weigh on sentiment
- Next: margins to retreat on rising input costs as Asian sourcing advantage is eroded; Next Directory facing increasing challenges
- Sandvik: share performance already reflects considerable recovery in margins; high dependency of profits on European and U.S. short cycle
- Whitbread: growth momentum slowing; consensus bullish, assumes dividends to continue growing ~10% pa (seen flat at BofAML)