By Sara Sjolin, MarketWatch
LONDON (MarketWatch)—Starting Monday, the European Central Bank will start pouring €60 billion a month into the eurozone to kickstart the economy and that means lots of buying opportunities for investors, analysts at Société Générale said.
The euro is already at an 11-year low against the dollar (but could fall further after QE), sovereign bond yields are at record lows (and likely to stay there) and European equities are at multiyear highs (but poised for further upside)—and all this adds up to a solid investment case for stocks in Europe, the analysts said in a note published Thursday after the ECB’s policy meeting. Read: Live blog recap from ECB meeting
Buy high-yielding stocks
As the ECB starts to buy large quantities of government bonds, long-term bond yields are likely to stay at very low levels. That means yield-hungry investors will start looking for investments with a higher payoff, and that should lead them to stocks with solid dividends as a way of generating income, the SocGen analysts said.
They pointed to eight stocks from their “premium list” that they forecast will pay a dividend yield above 3.5% (which is higher than almost any European sovereign bond at the moment) in 2015: Royal Dutch Shell /zigman2/quotes/204253697/delayed UK:RDSB -1.24% /zigman2/quotes/207682964/composite RDS.B +5.42% , Rio Tinto /zigman2/quotes/208934945/delayed UK:RIO -2.94% /zigman2/quotes/202627887/composite RIO +3.47% /zigman2/quotes/200083756/delayed AU:RIO +1.12% , ArcelorMittal FR:MT 0.00% , Axa /zigman2/quotes/202169431/delayed FR:CS +0.02% , Crédit Agricole /zigman2/quotes/209264506/delayed FR:ACA -0.53% , Aviva , Enel /zigman2/quotes/207756670/delayed IT:ENEL +0.23% and Intesa Sanpaolo /zigman2/quotes/206161760/delayed IT:ISP +0.05% .
Buy euro-sensitive stocks
The euro /zigman2/quotes/210561242/realtime/sampled EURUSD -0.0420% has been under sharp selling pressure lately and with the ECB kicking off full-fledged QE, the pressure on the shared currency is likely to continue. That is good news for European companies that make the bulk of their profit outside the euro area as their goods become cheaper for other currency holders. To best play this theme, SocGen suggests gearing your portfolio to companies that will benefit the most from the sliding euro, such as Accor /zigman2/quotes/203800565/delayed FR:AC -2.49% , Inditex /zigman2/quotes/203681809/delayed ES:ITX +0.71% , Renault /zigman2/quotes/200919924/delayed FR:RNO -1.85% and ArcelorMittal FR:MT 0.00% .
Buy riskier stocks
European stocks have already posted double-digit growth this year, but the move by the region’s equities is far from over, according to SocGen. As the impact of QE combines with lower oil prices and a weak euro, European companies should have a fine year ahead of them. To make the most of the expected rally, the SocGen analysts suggest buying volatile or riskier equities, known as high-beta stocks, such as Crédit Agricole /zigman2/quotes/209264506/delayed FR:ACA -0.53% , Intesa Sanpaolo /zigman2/quotes/206161760/delayed IT:ISP +0.05% , Nokia /zigman2/quotes/207421390/composite NOK +2.52% , Axa /zigman2/quotes/202169431/delayed FR:CS +0.02% and Enel /zigman2/quotes/207756670/delayed IT:ENEL +0.23% .