Credit Suisse names share tips for December

Credit Suisse has taken a red pen to its 102 top trades across 32 subsectors - 57 of them 'buys' - and has made some last minute substitutions as we approach the end of the year. The broker has made 16 changes since October - 10 are 'buys' - and while the overall view is bullish, more companies are tipped to underperform this time.

It's little surprise that Volkswagen is expected to be the automotive sector's worst performer, while Milan-listed Fiat Chrysler should do well. More surprising, perhaps, is that high-flying clothes retailer Next is among those expected to underperform alongside luxury fashion brand Burberry, bookie Ladbrokes and oilies Statoil and BP. On the flip side, Shell should outperform, along with bank Societe Generale, British American Tobacco and Swiss drugs maker Novartis.

London-listed office supplier UBM, drinks giant Diageo, property portal Zoopla and phosphate-based fertiliser producer PhosAgro are added to Credit Suisse's list of outperformers, along with Swiss watch group Swatch and insurer Zurich, German real estate firm Grand City Properties and high-tech polymer supplier Covestro, Turkish state-owned bank Halkbank, and Swedish security group Securitas.

Additions expected to underperform were also made, with drugs giant AstraZeneca added to the mix. It's joined by German "green tyres" company Lanxess, Dutch information services group Wolters Kluwer, Scandinavian insurer Tryg, Turkish bank Vakifbank and Polish miner KGHM Polska.

Here's a closer look at the logic behind the broker's UK-listed stock picks:

UBM (Outperform)

At 509p, Credit Suisse analyst Nick Bertolotti reckons UBM could be worth nearly a quarter more due to its exposure to the attractive events subsector, the potential sale of the PRN unit and subsequent shareholder windfall, margin upside as a result of platform standardisation and undemanding valuation.

According to Bertolotti, events companies grow in line with GDP - or higher - thanks to strong margins and attractive cash dynamics. The sector is also set to benefit from structural changes as business look for efficient ways to conduct face-to-face communication. These strong margins should also improve as the group invests £15 million in "standardising" its technology and data. Annual savings of at least £10 million are expected.

"UBM trades on a hefty discount to the Euro Professional publishing space (this is in spite of UBM earnings being supressed by £10 million of restructuring in 2015, worth c. half a turn).

"We value the group on a [sum of the parts] basis yielding a target price of 630p; at this price UBM would trade on 15.6x 2015e [price/earnings (PE) multiple], still a discount of over 10% against the European Professional publishing space."

Diageo (Outperform)

After two years of earnings downgrades, a crucial focus on volume growth may signal the end to the Captain Morgan rum firm's woes. In line with earnings per share (EPS) upgrades of between 2-4%, the analysts have upgraded their target price to 2,100p, which represents 9% upside to its current 1,928p target price. Beware for foreign exchange headwinds and the impact of non-core disposals, however.

After underperforming its peers, the Credit Suisse believes there is room for a re-rating. "DGE has underperformed its staples peer group by 15% YTD, and now trades at a 5% PE discount - successful execution could lead to a premium rating," say the analysts. "This is supported by a 3.3% dividend yield which, with buybacks, could drive 3% total shareholder return compound annual growth rate (CAGR) FY 17-19E."

Zoopla (Outperform)

With the UK property portal space holding "significant" potential, Credit Suisse reckons the shares have 33% upside from their current price of 219p. Not only is the service low cost - the company charges agents 1.6% of sales instead of the typical 10% spent on marketing - but in falls in line with the trend of increasing marketing spend moving online. It’s also cheaper than Rightmove and competition from Agents Mutual is stalling.

"The uSwitch acquisition is both financially and strategically attractive. uSwitch cost 8. 1 - 9 . 6 x FY 15 EBITDA for CSe + 14 % 14 - 17 adj EBITDA CAGR. uSwitch will allow ZPG to better monetize its consumer audience by integrating the provision of ancillary switching services into its consumer journey."

AstraZeneca (Underperform)

The drugs group is struggling to stand out in a highly competitive market and against a challenging diabetes backdrop, which more-than offsets the attractive investment points in its mid-term pipeline, warns Credit Suisse. Valuing the shares at 4,000p compared to their 4,499p current price, greater emphasis should be centred on companies with greater short-term visibility.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.