ECB Maintains Accommodative Monetary Policy: 5 Top Picks
On Sep 13, European Central Bank (ECB) President Mario Draghi reaffirmed that the central bank of 19-member Eurozone will continue its accommodative monetary policy, keeping all three benchmark interest rates unchanged. Moreover, the central bank has opted for a phased elimination of its ongoing monthly bond purchase program by the end of this year.
Per the ECB, continuing economic expansion and a rising wage rate will absorb growing inflation in Eurozone. Accommodative monetary policy is likely to spur growth in the Eurozone over the medium term. At this stage, investment in Eurozone stocks with favorable Zacks Rank will be lucrative.
ECB Keeps Benchmark Interest Rates Unchanged
The ECB kept its main refinancing rate, rates on marginal lending facility and deposit facility unchanged at 0%, 0.258% and -0.4%, respectively. The central bank intends to follow an easy interest rate policy at least through the summer of 2019.
Further, the Eurozone financial regulator will pursue the same accommodative monetary policy with low interest rate as long as inflation remains below its 2% target level over the medium term. Per the ECB, the Harmonised Index of Consumer Prices (HICP), its preferred inflation gauge, will rise at a rate of 1.7% per annum till 2020.
However, the ECB slightly lowered its growth projection for the Eurozone economies for 2018 and 2019 to 2% and 1.8% from its earlier projection of 2.1% and 1.9%, respectively. The outlook for 2020 remained unchanged at 1.7%.
Phased Elimination of Stimulus Measures
In line with the decision taken in its Governing Council meeting held in July, the ECB will continue purchasing €30 billion a month worth of bonds through the end of this month. After that, the central bank will reduce bond purchases to €15 billion a month through the end of December and ultimately end the program if mid-term inflation data comes in line with its expectations.
In the past four years, the ECB has purchased more than 2.5 trillion euros of debt as part of its monetary stimulus program. The measures have proven extremely helpful in reviving the Eurozone economy suffering from a double-dip recession.
According to Draghi, Eurozone’s growth outlook is “broadly balanced.” Risks like external shocks (trade conflict with the United States and emerging markets contagion) and high inflationary fear will be offset by continuing economic growth which is now into its sixth consecutive year and higher wage rate.
Our Top Picks
The ECB has confirmed that it will continue to follow monetary accommodation through reinvestment policy, forward guidance and low interest rate in order to promote growth. Consequently, investments in Eurozone stocks will aid strengthen portfolio. However, picking winning stocks can be a difficult task.
This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.
We have narrowed down our search to five stocks, each of which has either a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of either A or B.
The chart below shows price performance of our five picks in the last three months.
Telecom Italia S.p.A. TI is an Italy-based communications service provider operateing mainly in Europe, the Mediterranean Basin and South America. The company has expected earnings growth of 45.6% for current year. The Zacks Consensus Estimate for the current year has improved by 4.2% over the last 60 days. The company has a Zacks Rank of #1 and a VGM Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.
ArcelorMittal MT is a Luxembourg-based steel and mining company with a presence in more than 60 countries. The company has expected earnings growth of 4.7% for current year. The Zacks Consensus Estimate for the current year has improved by 11.4% over the last 60 days. The company has a Zacks Rank of #2 and a VGM Score of A.
Globant S.A. GLOB is a Luxembourg-based technology services provider offering engineering, design and innovation services to clients. The company has expected earnings growth of 30.5% for current year. The Zacks Consensus Estimate for the current year has improved by 1.8% over the last 60 days. The company has a Zacks Rank of #2 and a VGM Score of B.
CNH Industrial N.V. CNHI is a UK-based manufacturer of trucks, commercial vehicles, buses, special vehicles, agricultural and construction equipment. The company has expected earnings growth of 52.1% for current year. The Zacks Consensus Estimate for the current year has improved by 5.8% over the last 60 days. The company has a Zacks Rank of #2 and a VGM Score of A.
VEON Ltd. VEON is a Netherlands-based telecommunication and digital service provider offering voice, fixed broadband, data and digital services. The company has expected earnings growth of 166.7% for current year. The Zacks Consensus Estimate for the current year has improved by 128.6% over the last 60 days. The company has a Zacks Rank of #2 and a VGM Score of A.
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Globant S.A. (GLOB): Free Stock Analysis Report
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