John Baker, manager of JPM’s Europe dynamic ex UK fund said that now we are seeing GDP growth in Europe accelerating, industrial production numbers coming in stronger than expected and consumer confidence growing, analyst earnings estimates should prove much more reliable this year than in the recent past.
This means however, that picking stocks where the growth potential has not been fully realised by the analyst community is trickier. Baker said two sectors in particular present opportunities to do this at the moment; automotive and medical companies.
Baker highlighted BMW as a good example of this in the auto sector. He explained the company has benefitted from faster than expected recovery in demand in Europe with a 7% year on year increase in cars sold during March. He said the combination of a revitalised product range seen at BMW and the improving macro picture is a winning combination to look out for.
Turning to the medical equipment space Baker pointed to Spanish medical equipment maker Grifols as an example of what investors should look for. The company had an 11% earnings upgrade because the demand for its blood plasma products is strong and this was combined with an earnings accretive acquisition from Novartis plus a new contract with the Japanese Red Cross.
These kind of multi –element good news stories are what investors need to dig up before the majority of analysts, given the macro picture and resulting reliability of earnings forecasts in general, according to Baker.
