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Reckitt Benckiser Group (RB.)

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Credit Suisse reiterates \'buy\' for US growth stocks (not Europe)

02 Jul 19

LONDON (ShareCast) - (Sharecast News) - Strategists at Credit Suisse told clients to \"buy\" growth stocks in the US - not in Europe - pointing to historical patterns to back up their arguments.
For starters, the so-called \'cost of equity\' in the US should retreat from 8.6% at present, they said.

Historically, said Andrew Garthwaite in his team, earnings revisions (excluding the TMT sector) had turned negative, \'growth\' as an investment style had outperformed.

That was also true 80% of the time in the six to 12 months following a first interest rate cut by the central bank.

\"Late-cycle bull markets do not tend to see a change in sector leadership, with breadth normally narrowing around a small group of growth stocks,\" they said.

In absolute terms, the price-to-earnings multiple for US growth stocks was at 27 times, versus the 45-60 times earnings usually considered to be growth at the end of most bull markets in equities.

\"The value side of the equity market has rarely been so disrupted. Price momentum is extreme, but historically, growth as a style has continued to outperform from current levels 85% of the time,\" the Swiss broker added.

In particular, and emphasising the importance of free cash flow, they recommended that clients focus in \"quality growth stocks\" including Microsoft, Bokking Holdings and Northrop Grumman.

Within the same research note, they also upgraded their recommendation for small capitalisation stocks in the States, from \'benchmark\' to \'overweight\', saying they \"appeared\" to be cheap and oversold.

American small caps were also pricing-in much lower bond yields and an ISM PMI index below 50.0.

Credit Suisse also stood by its \'overweight\' for European small caps, arguing that they were \"modestly cheap\" and tended to outperform when PMIs and the euro strengthened.

\"In both Europe and the US, small caps are pricing in much wider credit spreads.\"

For European growth on the other hand, the composition of growth stocks on the Continent, which was very overweighted towards consumer staples and financials, meant that it underperformed when bund yields rose.

So, with bund yields having much more upside than Treasury yields, due to a \"much higher likelihood\" of a positive growth surprise on the Continent, they stayed at \'benchmkark\'.

As an aside, among \"attractive\" value names in Europe they picked out IAG and BMW, while including Reckitt Benckiser among the \"expensive growth\" stocks.

\"In both Europe and the US, small caps are pricing in much wider credit spreads.

Note 1: Prices and trades are provided by Digital Look Corporate Solutions and are delayed by at least 15 minutes.


Market Data

Currency UK Pounds
Price 5,936.00p
Change Today -163.00p
52 Week High 6,688.00p
52 Week Low 5,767.00p
Volume 1,280,443
Shares Issued 709.75m
Market Cap 42,131m


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Ex-Div n/a 22-Aug-19
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Amount 101.60p 73.00p