Sunday, 26. February 2017  
19.10.2016 19:53
Author: Nic Wright

STOCK SCREEN: Reflation And European Cyclicals With Solid Intrinsic Value Upside

 

Central banks around the world are upping their inflation forecasts, amid a surge in oil prices. Data from the International Monetary Fund showed early October that inflation in the U.S. could reach 2.3 percent in 2017, even though the Fed believes that inflation will not hit the 2 percent target before 2018.

 

Based on the latest ECB data, the headline inflation across the member bloc should reach 1.2 percent in 2017 and 1.6 percent in 2018, while in the U.K., inflation expectations are also on the rise, given the falling value of sterling and a Bank of England Governor willing to tolerate some inflation overshoot to give room for economic resilience.

 

But what are the implications of higher inflation rates on equity markets? A shift to a reflationary environment might trigger a sharp sector rotation out of over-owned, expensive bond proxies into cheap, under-owned financials and cyclicals, while higher inflation expectations would boost depressed corporate earnings and equity prices. However, banks are the sector most vulnerable to any rise in macro uncertainty and credit spreads and downside risks to global growth for example from Brexit, the Italian referendum and the US election are not be neglectable.

 

In looking for ideas this week, we screen for European financials and cyclical value stocks with solid upside to our AVM’s intrinsic value estimate.

 

Here are the filter criteria we used:

 

1. Market Capitalization above 1bn.

2. Market Sensitivity above average.

3. Above 20 percent Upside based on our AVM’s Graham Intrinsic Value approach.

 

Here is our list of stocks matching all criteria in alphabetical order. Company names in the table below are linked to the ANALYZER, our single stock analysis tool. Intrinsic Value Model assumptions can be adapted in the MODELER, our modeling and forecasting environment:

 

CLICK COMPANY NAME FOR DETAILED STOCK VALUE ANALYSIS

COUNTRY

INDUSTRY

LAST PRICE

MARKET CAP.

MEAN MULTIPLE UPSIDE [%]

GRAHAM UPSIDE [%]

 ACS ACTIVIDADES CONS Y SERV

 Spain

 Construction

26.65

8386

181.0

94.3

 AGGREKO PLC

 United Kingdom

 Commercial Services

951.00

2436

66.5

42.3

 ANTOFAGASTA PLC

 United Kingdom

 Mining

521.00

6320

46.6

118.5

 BANCO SANTANDER SA

 Spain

 Banks

4.09

59080

6.4

25.9

 BAYERISCHE MOTOREN WERKE AG

 Germany

 Car Manufacturers

77.24

50173

218.6

94.3

 BERKELEY GROUP HOLDINGS

 United Kingdom

 Home Builder

2489.00

3466

40.8

70.4

 BOVIS HOMES GROUP PLC

 United Kingdom

 Home Builder

804.50

1082

68.5

24.7

 CNH INDUSTRIAL NV

 Netherlands

 Machinery

6.92

10443

26.2

85.2

 CREST NICHOLSON HOLDINGS

 United Kingdom

 Home Builder

421.60

1072

51.1

51.4

 DAIMLER AG-REGISTERED SHARES

 Germany

 Car Manufacturers

64.85

69358

53.6

68.5

 DRAX GROUP PLC

 United Kingdom

 Electric Utility

325.10

1322

110.2

163.7

 EDF

 France

 Electric Utility

10.26

20656

25.8

103.8

 FF GROUP

 Greece

 Retail

22.06

1477

0.6

57.8

 FIAT CHRYSLER AUTOMOBILES NV

 Netherlands

 Car Manufacturers

5.75

7329

122.7

434.4

 K+S AG-REG

 Germany

 Chemicals

17.67

3381

5.3

47.5

 LADBROKES PLC

 United Kingdom

 Entertainment

138.70

1413

32.7

24.4

 PETROFAC LTD

 United Kingdom

 Oil & Gas Services

913.50

3888

81.7

71.9

 RAIFFEISEN BANK INTERNATIONA

 Austria

 Banks

14.35

4203

6.1

58.0

 SAINSBURY (J) PLC

 United Kingdom

 Food

234.10

5119

25.1

32.0

 STANDARD CHARTERED PLC

 United Kingdom

 Banks

675.40

27291

72.9

38.5

 TECHNIP SA

 France

 Oil & Gas Services

57.95

7089

50.8

39.4

 VIENNA INSURANCE GROUP AG

 Austria

 Insurance

18.08

2314

70.1

72.5

 VOLKSWAGEN AG-PREF

 Germany

 Car Manufacturers

121.88

64131

162.9

91.1