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Bank of America Names European Companies Expected to Perform Well During Economic Downturn
With the European economy appearing to be headed for an extended recession, Bank of America has named several European companies whose stocks are expected to perform well in the face of an economic downturn. Bank of America's proprietary Style Cycle model indicates that Europe is now in a recession for the first time since 2020, which could result in decreasing business activity growth. During such an economic environment, the Wall Street bank's strategists have named several companies that are believed to provide high cash yields in the face of a looming recession.
Top Companies Named by Bank of America
The firms selected by Bank of America are all part of the Europe Stoxx 600 index and offer a 12-month forward cash yield higher than the average for their respective sectors. The companies named by Bank of America are KBC from Belgium, Intesa Sanpaolo and Eni from Italy, Nordea Bank from Finland, Repsol from Spain, Barclays and Aviva from the United Kingdom, and BNP Paribas from France. Banking and insurance group KBC tops the list with a 12-month forward dividend yield of 8.1% and a total cash yield of 14.2%, including returns through buybacks.
Benefits of These Companies
These companies are expected to provide investors with a steady flow of cash through dividends or buybacks, even if the overall economy is not doing so well. According to Paulina Strzelinska, Bank of America's quant strategist, the difference between the company's dividends and the bond yield has turned negative for the first time since 2011, indicating that companies are now paying their shareholders more than investors can earn from bonds. Furthermore, 133 new buyback programs have been announced this year alone, with 27 coming from banks, 15 from energy companies, and 13 from industrials, according to Strzelinska's research note to clients on June 21.
Historical Data and Sector Performance
Based on Bank of America's historical data, specific sectors like food, beverages and tobacco, healthcare, and personal and household goods stores have performed better during economic downturns. The investment bank's strategist added that some cyclical sectors, such as automobiles, basic resources, and energy may also be attractive in this phase due to their higher cash yields.
Bank of America's strategists said they favor large companies that are considered value over growth, high quality, and low risk during an economic downturn. The companies named by Bank of America are expected to provide shareholders with high cash yields, making them a wise choice for investors looking for a steady flow of cash through dividends or buybacks in a potentially volatile market.
Given the current economic situation in Europe, it's important for new businesses to take note of Bank of America's report on which companies are expected to perform well during an economic downturn. While it's difficult to predict how long this downturn will last and what the full impact will be on the business landscape, it's worthwhile to consider the sectors and companies that have historically performed well during recessions. Specifically, sectors like food, beverages and tobacco, healthcare, and personal and household goods stores have shown resiliency during economic downturns.
New businesses should also pay attention to the advice offered by Bank of America's strategists, who recommend focusing on large companies that are considered value over growth, high quality, and low risk during an economic downturn. While new businesses may not have the resources to invest in these large companies, they can still draw inspiration from their approach to business during challenging times.
Overall, the current economic situation in Europe offers a unique opportunity for new businesses to learn and adapt to a volatile market. By carefully studying historical data and following the advice of experts, new businesses can position themselves for success in the face of economic uncertainty.