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Bank of America has named the European companies whose stocks are expected to perform robustly in the face of a possible economic downturn. It comes amid increasing signs that the European economy could be headed for a period of extended recession. Preliminary data last week pointed toward a slowdown in business activity growth for June , and earlier this month, the euro zone group of nations reported a quarter-on-quarter contraction , taking it into a technical recession. Bank of America’s proprietary Style Cycle model also shows that the region is facing a “recession phase.” This model, which tracks the stages of the economy, indicates that Europe’s economy is now in a downturn for the first time since the second quarter of 2020. During such an economic environment, the Wall Street bank’s strategists said they favor large companies that are considered value over growth, high quality, and low risk. The firms selected by the bank stand out because they are expected to offer high cash yields in the face of a looming recession. This means that they should provide investors with a steady flow of cash through dividends or buybacks, even if the overall economy is not doing so well. These companies are all part of the Europe Stoxx 600 index, have a market capitalization of at least 5 billion euros ($5.4 billion), and offer a 12-month forward cash yield higher than the average for their respective sectors. The forward cash yield measures how much cash a company is expected to generate for its shareholders over the next year compared to its current market price. Among the companies named by BofA 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. These companies, among others, fall into the banks, energy, and insurance categories. 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%, according to the bank’s forecasts. The cash yield also includes returns through buybacks. 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. In other words, companies are now paying their shareholders more than investors can earn from bonds. This year alone, 133 new buyback programs have been announced, with 27 coming from banks, 15 from energy companies, and 13 from industrials, according to Strzelinska’s research note to clients on June 21. Based on BofA’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.
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