Weak Macro Backdrop Good for Future Profits: Stubbs

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Oct. 31 (Bloomberg) -- Jonathan Stubbs, head of European equity strategy at Citigroup, talks with Francine Lacqua about European earnings and why he sees strength in earnings and profits over the next 12-18 months. He speaks on Bloomberg Television’s “On The Move.”

Thank you so much for coming into the studio.

Talk to me a little bit about what you are seeing in the earnings.

Last week we had disappointing figures.

Today, bt is not doing badly.

It seems that if you get your strategy right, you can deliver good earnings.

A number of points.

We are seeing mixed results across the corporate sector.

That depends which industry you are in, which geography you are exposed to.

Very mixed results.

We are seeing on the day, some big diversions in share price performance.

We have a rather weak macro back drop.

The economies are starting to normalize.

Looking forward, we should see a better profit outlook in the next 12 to 18 months.

How do you pick the stocks?

Do you go for cheap value or for the ones that are going to weather the storm if we see a downturn in europe and elsewhere?

It is hard for investors to find value within the markets now.

There aren't -- we had a good rally.

Markets are up 20% since june.

We have seen risk and value lead the way.

It is hard to find cheap shares.

The value, the mega caps, are very big market cap companies and they have structural headwinds partly related to low growth rates and related to the lack of willing ceos to do self- help.

Investors should buy earnings leadership over the next 12 to 18 months.

Leadership has come from defensive companies.

Going forward, it will be a mix of companies -- financials.

With stronger economies, we have economic cyclicals.

Also, there will be some defensive growth and quality.

There is a broader opportunity.

When you talk about financials, i would be wary because we do not know what the asset quality review will bring.

We do not really know in terms of regulation what the banks are facing.

We are two years on from talk about extra regulation.

We do not know the litigation.

How do you find value in banks?

There are a couple of things -- you can look for value in financials which are not angst, the insurance sector --that are not banks, the insurance sector.

That is one way of avoiding the question.

Within banks themselves, one strategy is to seek the higher quality names were you have a much bigger capital buffer and the excess capital -- there's a surplus.

Some of that capital will come back to shareholders.

We would go for higher quality banks, the nordics, the swiss, the french, and the insurance sector.

Thank you so much for that.

Here's a look at what else is coming up on "on the move"." revenue surges that facebook am a but is he getting less likes?

A trouble spot.

Which region is causing headaches for l'oreal?

I will speak to bayer's chief executive.

Keep it right here.

We are "on the move"." ?

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