* Cashing in - Income stocks & FCF machines We screen for stocks where cash generation is forecast to ramp up to 2020, as well as income stocks to own as investor attentions shift to cash return stories. Rolls-Royce screens as a FCF compounder as its civil aerospace division inflects, while ABI appears as synergies from the SAB deal drive FCF. TOTAL & Orange appear in both, as big oils get set to ‘scrap the scrip’, and growth returns to France in Telecoms.
* Taking a view ‘Against the Grain’ Away from 2Q, we revisit some of our most outof- consensus calls on a 12m view. Industrials are in focus; CNHI continues to screen as one of the most compelling cyclical names, while GS are well above consensus on VW & FCA in Autos.
* The Gold Blend: Macro ‘agnostic’ alpha Our Tactical Research Group has shown that owning stocks with an attractive blend of growth, returns & valuation has delivered alpha, with historically little impact from macro variables. With valuation not stretched and seasonal considerations looking favourable, now is the time to revisit. Roche & Yara feature here.
* Value vs. vol: What to own & what to avoid Sharp moves in rates at the end of June prompted divergent factor performance with Value stocks strong, while Low Vol names lagged. Here we screen for the names to own and the names to avoid from a Factor perspective if rates continue to re-price and Factor moves continue. Henkel (a low vol stock in a low vol sector) might be one to avoid, while Philips screens positively.
* Strategic Targets M&A volumes were up 50% in Western Europe in 1H17 (yoy), as such, we highlight some of the
names our analysts see as the most attractive strategic targets in Europe. Wirecard continues to look well-placed in the consolidating payments landscape and recently upgraded Essity also features, with potential margin upside.
* Names to avoid To the downside, we advocate selling Pearson as cost-cutting initiatives continue to be offset by
structural headwinds in key markets. Elsewhere, we expect Danone’s organic growth to lag peers, and Lloyds to bear the brunt of mortgage pricing pressure in the UK, with evidence mounting.