European Banks Downgraded, Stocks To Buy If Markets Turn Sour

When industry pressures prompted the emergency merger of Switzerland's two major institutions, Wall Street is lowering European banks.

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Investment bank Citi upgraded the continent's tech industry at the same time, stating that it valued "quality growth" above faster growth rates and worsening fundamentals.

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The Wall Street bank's strategists advised investors to concentrate on technology in a note to clients on March 22 as the market faced higher tail risks due to worries over the credit supply at the major lenders.

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"The fundamentals of the European banking industry appear sound. Yet, the lingering confidence issue may restrict banks' appetite for risk and decrease the flow of credit, according to Beata Manthey and her team of Citi strategists.

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The pan-European Stoxx 600 index's price goal was lowered by the bank to 445 points, which reflects no increase above current levels. Also, it decreased its FTSE 100 end-of-year forecast.

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Price goal of 7,600 points—just 1.2% above present prices.

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The failure of Silicon Valley Bank in the US caused investors in Europe to become more cautious, and Deutsche Bank Research downgraded the banking sector from "overweight" to "neutral."

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The bank's strategists said that their list of 12 buy-rated equities would hold up against general market sell-offs in a study headlined "A dozen stocks in case markets turn bad.

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• Orange

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• Deutsche Telekom

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• Nokia

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• Heineken

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• Hannover Rueck

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• Imperial Brands

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• Air Liquide

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• Sodexo

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• Astrazeneca

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• Royal Kpn

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• Sap

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• L’oreal

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The firms on the list, according to strategists at Deutsche Bank Research, could outperform larger markets in downturns. Examples include Nokia, Sodexo, and SAP.

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The major 5G ramp-up in India has increased Nokia's market position in wireless infrastructure, and the company has long-term agreements with operators. This makes Nokia a viable investment, says the bank.

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In the meantime, they stated that top-line growth of 8–10% is anticipated this year as a result of Sodexo's defensive growth profile.

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Maximilian Uleer and Caroline Raab, two German strategists, stated that German software giant SAP had completed its expensive cloud investments and was now beginning to reap the rewards of the change.

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The strategists stated about SAP that "recurring revenue is now nearing 80% of the group while lump and macro-sensitive license revenues have become quite tiny."

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This should be encouraging for growth's ability to persevere in a downturn, especially given the robust pipeline of new cloud transactions already in place.