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(Adds average total revenue generated from Europe for the recommended companies.)
NEW YORK (
JPMorgan's(JPM) investment strategists are telling the bank's customers to buy large-cap cyclical stocks because those companies are largely immune to Europe's debt crisis.
The New York-based investment bank's research shows that only 8% of
S&P 500 companies' earnings per share are generated in Europe. That implies that $8.40 of $105 in 2012 EPS, the bank's estimate, will come from Europe. If European profits fall by a third, even a modest increase in the rest of the world would compensate for the loss.
Still, the U.S.'s exports to Europe total 14%. JPMorgan, however, points out that that exposure is primarily to stronger European economies, like Germany and the U.K. Emerging markets account for 44% of export volume, helping to offset Europe.
Back home, the economy has been improving, a sign U.S. stocks may extend a rally over the past two months. Most recently, jobless claims last week came in better than expected to a level not seen since February. Consumer sentiment increased more than economists anticipated, reaching a six-month high.
Given this backdrop, the equity-strategy team at JPMorgan did a screen for cyclical companies that have little exposure to Europe and market values of over $3 billion. The movement toward a resolution in Europe, companies buying back shares, U.S. economic momentum, a seasonally strong December and active-manager underperformance may propel JPMorgan's stock picks, the bank's strategists say.
seven "overweight"-rated stocks in the basket of 19 stocks that the firm is recommending to buy are listed below by potential upside. Of note, the recommended stocks have only 4% of revenues on average coming from Europe. (JPMorgan also has a
list of shares to avoid.)
Equifax(EFX - Get Report)Company Profile: Generates consumer credit reports.
2011 Return: 4.6%
Current Price (Dec. 13): $37.25
JPMorgan's 2012 Price Target/Upside: $40/7.4%
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