(Updates to add note on Michelin cost cuts.)
NEW YORK (
expects European countries to get their house in order, boosting some shares by as much as 84% in the next 12 months.
The U.S. investment bank identifies the shares of 30 companies in various industries that are worth buying heading into 2012. Most of the top picks are diversified across countries, though there's a concentration in France and Germany, the most stable in the eurozone.
A portfolio of JPMorgan's top European picks for 2011 would have declined by 11% so far this year, compared with the benchmark
Stoxx Europe 600 Index's
, a Dutch aerospace and defense company, was the best-performing pick this year, up 25%. Carmaker
PSA Peugeot Citroen
was the firm's worst selection, down 50%.
Monday was a big day for Europe. France and Germany told the European Union that they must decide if they will accept greater central control over their national budgets. Then Standard & Poor's said it may cut Germany's and France's AAA credit ratings as the agency put 15 euro nations on review for a possible downgrade.
U.S. Treasury Secretary Tim Geithner is currently on a three-day trip to Europe to push European leaders to commit to taking action at the conclusion of their meetings on Thursday and Friday. After a meeting with the French finance minister, he noted he was confident that their efforts would be succeessful.
JPMorgan's European equity strategists say more aggressive intervention in Europe, growing global economies, easing emerging-market monetary policy and strong corporate balance sheets, combined with equity markets that are underowned, provides an opportunity to get involved in select stocks.
The strategists caution that the price of safety, defined as high-quality and defensive growth stocks, is too high right now. As such, they are recommending buying low-quality and value shares. Mislav Matejka, head of European equity strategy at JPMorgan, says: "While it doesn't usually sound appealing to buy 'low-quality' stocks, we note that they trade at extremely cheap valuations at present."
He says the "valuation differential between value and growth is extreme, calling for a reversal of the trade."
What follows are JPMorgan's top five European stock picks for 2012, assuming the companies' shares reach the bank's price targets.