The A-Team of Stocks Is Led by a Telco This Year: Taking Stock

(Bloomberg) -- Besides sharing first initials, Altice Europe, ASM International, Altran Technologies and AMS also have a performance in common: all have roughly doubled in value this year, and, in the case of Altice, almost tripled. Growth, scarcity, recovery and balance-sheet strength are the winning themes for stock pickers in a year mostly dominated by defensive sectors.

Heading into the final quarter, this year’s biggest-gaining equities in Europe are tech-heavy and showcase some strong comebacks. While 2019’s headlines have been dominated by global economic growth concerns related to the trade war and political turmoil in the U.S. and the U.K., it hasn’t been enough to derail the sharp rally in some of the tech and telecom names.

The A-Team of Stocks Is Led by a Telco This Year: Taking Stock

To be fair, some of the outperformance reflects recovery stories. For example, despite the 88% gain this year, Apple supplier AMS still trades at about half the price at where it started 2018. Last year ended with a sell-off across risk assets as investors fretted about trade tensions, with the semiconductor sector hit particularly hard given the global nature of the supply chain.

“After a torrid end to 2018, the New Year represented a turning point for markets,” said Alasdair McKinnon, lead manager of the Scottish Investment Trust. “For stocks, characteristics previously seen as a vice were now seen as a virtue.”

Another prime example of a recovering stock is phone carrier Altice. It crashed down hard in 2017 on debt concerns that were exacerbated by a price war in France, its home turf, then jumped after splitting its U.S. business, only to give up those gains by the end of 2018. This year’s rise of about 180% have taken the stock to the highest level since mid-2017, boosted by a bond-sale plan and asset sales to cut its debt. The stock’s performance sharply contrasts with other telecom shares in Europe.

The A-Team of Stocks Is Led by a Telco This Year: Taking Stock

“A significant amount of future refinancing is likely for Altice over the next two years, and given the low cost of debt and investor appetite scrambling for yield, Altice can take advantage,” said Neil Campling, an analyst at Mirabaud Securities.

Stronger balance sheets are playing a part in the wider success of tech stocks, according to Jeremy Leung, a portfolio manager at UBS Asset Management. Results in the industry this year have shown resilience, with an absence of the major profit warnings experienced by more cyclical industrial and material stocks, Leung says.

Elsewhere, engineering tech consultancy Altran has soared 105% this year, mostly thanks to a $4.1 billion bid from IT services firm Capgemini in June. Altran’s shares have settled slightly above the 14 euros-a-share offer price.

One genuinely record-breaking stock is ASM International, which blew past its 2018 peak in July and never looked back. Chip stocks have firmed up in the second half of the year on signs that industry demand is troughing, according to Dan Ison, senior portfolio manager at Columbia Threadneedle Investments.

“Overall TMT stocks have been strong performers this year, which is very much in line with the performance that we have seen in U.S. technology,” he says. “Due to the scarcity of these types of stocks in Europe, many of these names have been well-bid during 2019.”

The A-Team of Stocks Is Led by a Telco This Year: Taking Stock

In the meantime, Euro Stoxx 50 futures are up 0.3% ahead of the European open, while S&P 500 contracts are up 0.4%.

  • Watch the pound and U.K. stocks as U.K. Prime Minister Boris Johnson will unveil his detailed Brexit plan to EU leaders within the next 24 hours, according to the Daily Telegraph.

COMMENT:

  • “As Brexit’s shadow hangs over interest rates and sterling, and global trade tensions deflate macro expectations, U.K. stock sector impacts show clear winners and losers,” Bloomberg Intelligence strategists Tim Craighead and Laurent Douillet write in a note. “Financials are following yields lower, energy and material estimates are at risk and pharma is riding the currency swings.”

NOTES FROM THE SELL SIDE:

  • Airbus and Boeing have outperformed broader markets in the past two years but even against a weaker macro backdrop, lower orders and slowing air traffic growth, it is not time to take profit yet, Berenberg writes in a note.
  • Telekom Austria needs to offer better cash returns in order for the stock to re-rate, and there should be plenty of scope to double the dividend by 2023 without affecting deleveraging, Jefferies says in a note upgrading to buy from hold.
  • There are “few positives for investors” in Commerzbank’s new strategy and Citi continues to hold a neutral rating on the bank with near-term risks to the downside.
  • Vivo Energy stock has been weak since its listing 16 months ago, but with pressure in Morocco now fully absorbed, it has yet to catch up with co.’s resilient and profitable growth outlook, Berenberg says in a note initiating coverage at buy.

COMPANY NEWS AND M&A:

  • Credit Suisse CEO Exonerated as Bouee Resigns After Spy Scandal
  • Deutsche Post Confirms 2020 View; Sees ’22 Ebit At Least EU5.3b
  • Vinci Signs Share Purchase Pact to Buy Back up to EU200m of Shrs
  • Stadler Rail Wins German Tender with EU57m Order Volume
  • KPN Names Joost Farwerck as CEO, ASR’s Chris Figee as CFO (1)
  • Generali Drops Pursuit of Bancassurance Partnership With BBVA
  • Clariant Sees FY 2019 Capex at CHF260m
  • Nexans Sees Winning U.S. Offshore Wind Contracts By End of Year
  • Metro Bank Says It’s Confident of Meeting 2020 MREL Requirements
  • Masmovil Increases 2020 Adj. Ebitda Guidance to EU570M-EU600M
  • Greggs Third Quarter Sales +12.4%
  • U.K. Audit Regulator Starts Probe Into Thomas Cook Statements

TECHNICAL OUTLOOK for Stoxx 600 index:

  • Resistance at 395.1 (July high); 397.9 (June 2018 high)
  • Support at 381.7 (50-DMA); 375.2 (200-DMA); 365.5 (50% Fibo)
  • RSI: 63.8

TECHNICAL OUTLOOK for Euro Stoxx 50 index:

  • Resistance at 3,573 (July high); 3,596 (May 2018 high)
  • Support at 3,444 (50-DMA); 3,403 (61.8% Fibo); 3,349 (200-DMA)
  • RSI: 64.2

MAIN RESEARCH AND RATING CHANGES:
UPGRADES:

  • NOS Upgraded to Buy at Grupo Santander; Price Target 6 Euros
  • PATRIZIA AG upgraded to buy at Bankhaus Lampe
  • Telekom Austria upgraded to buy at Jefferies; PT 8 Euros

DOWNGRADES:

  • ISS downgraded to hold at Jefferies; PT 180 Kroner
  • RBS downgraded to equal-weight at Barclays; PT 2.25 Pounds
  • Shurgard Self Storage downgraded to hold at HSBC; PT 31 Euros

INITIATIONS:

  • Air France-KLM Reinstated at BofAML With Buy; PT 12 Euros
  • Banco Santander resumed at citi with Neutral; PT 3.80 Euros
  • EasyJet Reinstated at BofAML With Neutral; PT 12 Pounds
  • Geberit rated new underweight at Barclays; PT 410 Francs
  • IAG Reinstated at BofAML With Buy; PT 6.60 Pounds
  • J. Martins reinstated equal-weight at Morgan Stanley
  • Lufthansa Reinstated at BofAML With Underperform; PT 12.20 Euros
  • Norwegian Air Reinstated Underperform at BofAML; PT 27 Kroner
  • Ryanair Reinstated at BofAML With Buy; PT 13.50 Euros
  • Vivo Energy rated new buy at Berenberg; PT 1.68 Pounds
  • Wizz Air Rated New Buy at BofAML; PT 41 Pounds

MARKETS:

  • MSCI Asia Pacific down 0.3%, Nikkei 225 up 0.7%
  • S&P 500 up 0.5%, Dow up 0.4%, Nasdaq up 0.8%
  • Euro down 0.09% at $1.0889
  • Dollar Index up 0.12% at 99.49
  • Yen down 0.15% at 108.24
  • Brent up 0.7% at $59.7/bbl, WTI up 0.9% to $54.5/bbl
  • LME 3m Copper down 1.2% at $5657.5/MT
  • Gold spot down 0.7% at $1462.1/oz
  • US 10Yr yield up 4bps at 1.7%

ECONOMIC DATA (All times CET):

  • 9:15am: (SP) Sept. Markit Spain Manufacturing PMI, est. 48.2, prior 48.8
  • 9:45am: (IT) Sept. Markit Italy Manufacturing PMI, est. 48.1, prior 48.7
  • 9:50am: (FR) Sept. Markit France Manufacturing PMI, est. 50.3, prior 50.3
  • 9:55am: (GE) Sept. Markit/BME Germany Manufacturing PMI, est. 41.4, prior 41.4
  • 10am: (EC) Sept. Markit Eurozone Manufacturing PMI, est. 45.6, prior 45.6
  • 10:30am: (UK) Sept. Markit UK PMI Manufacturing SA, est. 47, prior 47.4
  • 11am: (EC) Sept. CPI Core YoY, est. 1.0%, prior 0.9%
  • 11am: (EC) Sept. CPI Estimate YoY, est. 0.95%, prior 1.0%
  • 6pm: (IT) Sept. New Car Registrations YoY, prior -3.11%

©2019 Bloomberg L.P.

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