• Stocks for 2017. In this outlook report, we focus on identifying drivers in stocks that are independent of the macro environment to pick potential winners for 2017. This isn’t to dismiss the relevance of macro considerations and indeed what will be a likely year of ongoing political risks. In their recent 2017 Outlook, our Global Equity Strategists set out in detail how such factors will influence the investment backdrop. However, the inherent volatility and uncertainty that is likely to prevail and what, excluding commodities, remains a world of midsingle-digit EPS growth, still suggests the ability of companies to generate returns through their own efforts remains key.
• We look for companies where a potential story of “change” in 2017 exists at the company to drive returns and in that regard reprise the theme of our 2016 stock picking report, 16 for 2016. This might be driven by M&A, a business portfolio shift, new management/strategy or a structural change in the dynamics of the market for a given company. In the investment summaries detailed by our analysts, we have highlighted where potential surprises in terms of catalysts lie on the 2017 calendar. Alongside our analysts’ assessments, our HOLT team have provided their valuation and style perspectives.
• We include 16 stocks rated Outperform, 2 stocks rated Neutral and 2 stocks rated Underperform. The inclusion of Neutrals reflects where a transformational change may not be a central scenario but flags a potential credible development that would represent a material shift and move the needle should it happen. In Outperforms, where the story may already be tangible, we highlight names where our analysts believe it is not fully appreciated by the market. Finally, for our Underperform names, we flag potentially significant changes that, though perhaps less likely, would reverse hitherto negative sentiment.
• Our surprise packages. The prevailing Outperforms in our stock list are Bankia, BAT, Danske Bank, Diageo, DONG Energy, DSM, Enel, G4S, IAG, IHG, LSE, Petrofac, Philips, Royal Dutch Shell, RPC Group and Zurich Insurance. Neutrals are Anglo American and H&M, and the ‘wild cards’ amongst our Underperforms are AstraZeneca and Burberry. For those who look back to our 2016 edition, they will find that 10 out of the 16 stocks outperformed their local index, suggesting that even in what seemed a very macro driven world, bottom-up drivers still mattered.