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Stock Market Traders react by high fiving at the end of trade at the New York Stock Exchange in New York,

Traders react by high fiving at the end of trade at the New York Stock Exchange in New York,


EMMANUEL DUNAND/AFP via Getty Images



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  • Despite the extraordinary small-cap and mid-cap rally, leading investment banks still see opportunities for outperformance.
  • To capitalize on this, we list Deutsche Bank’s top 16 small-cap and mid-cap stock picks.
  • The stocks belong to a portfolio that consistently beats mid-cap and large-cap indexes.
  • See more stories on Insider’s business page.

Some investors have started to move away from investing in small-cap and mid-cap companies following an extraordinary rally that took root after news broke of the first effective vaccine late last year.

The Russell 2000 index of small-cap stocks has surged 59% over the course of a year compared to a 35% rally in the large-cap S&P 500 index. The outperformance has continued this month, albeit at a more modest pace. The Russell 2000 is up 4%, while the S&P 500 is up just 1%.

However, leading investment banks still believe there are opportunities for outperformance in the smid-cap area of the market.

On June 15, Deutsche Bank released a research note of their top picks in the small- and mid-cap sectors that could help investors capitalize on the trend.

“Since its inception in January 2020, our top picks portfolio has consistently outperformed the MidCap and LargeCap markets, other than a brief period in the immediate aftermath of the COVID pandemic,” said Deutsche Bank research analyst, Uwe Schupp in the note.

Stock Market Graph of the top 8 European picks relative to the European indexes from Deutsche Bank note Graph of the top 8 European picks relative to the European indexes from Deutsche Bank note

Deutsche Bank


The portfolio is made up of eight European stocks and eight UK stocks, both of which are markets that investment banks are becoming exceedingly bullish on. 

European and UK stocks generally have cheaper valuations compared to US stocks and are more value-focused, which mean they are poised to do well in the global economic reopening following the pandemic.

On May 26, Bank of America analysts highlighted that small cap stocks tend to outperform large cap stocks around 75% of the time in the middle of a cycle, which is where the analysts believe the market is.

“We’re currently in month four [of the mid-cycle phase] (vs. 9-10 months historically) and where small caps are barely ahead of large caps this year after giving up much of their leadership in March/April,” Bank of America analyst Jill Carey Hall wrote in the research note.

Bank of America analysts recently moved to overweight on European smid-caps because of the upside expected from European PMIs as the recovery from the coronavirus pandemic fully gets underway in the region.

Insider recently spoke to JP Morgan Asset Management portfolio manager Callum Abbot who highlighted how incredibly undervalued the UK market is right now, especially given the success of Britain’s vaccine rollout and economic rebound.

“There’s not many times you get to buy a market as cheap as this one with a really strong recovery story,” said Abbot, in the interview describing the UK market.

Citi’s private bank, which caters to high-net worth individuals, also has strong overweight positions on both the UK and European market.

“We are really bullish on the UK equity market,” Jeffrey Sacks, Citi Private Bank’s head of EMEA investment strategy, said in a recent interview. ” … In March of this year, we tripled the size of our overweighting and it’s now our largest developed market overweighting, a really high conviction view and a perfect demonstration of what we like at a global level.”

The UK small-cap index, the FTSE 250, is up 29% over the course of the year, while the European small-cap index, the STOXX 200, is up 33%.

Stock Market Graph of the performance of the top 8 UK stocks relative to FTSE 250 from Deutsche Bank note Graph of the performance of the top 8 UK stocks relative to FTSE 250 from Deutsche Bank note

Deutsche Bank


Deutsche Bank recently updated its list of top picks that it believes is set to outperform in the coming months.

Stock Market Stock picks

Stock Market 1. Aixtron

Stock Market Graph of Aixtron stock on June 16 Graph of Aixtron stock on June 16


Markets Insider



Ticker: AIXXF

Sector: Semiconductors

Market capitalization: €2.48 billion

Target price: €27.00

Target price upside: 47%

Analyst commentary: “Driven by a plethora of new applications, and with physical limits making innovations in the semi space even tougher to achieve, the compound semiconductor market is coming of age – and Aixtron is the key enabler.”

Source: Deutsche Bank

Stock Market 3. Jost Werke

Stock Market Graph of Jost Werke stock on June 16 Graph of Jost Werke stock on June 16


Markets Insider



Ticker: JST

Sector: Auto parts

Market capitalization: €827 million

Target price: €60.00

Target price upside: 10%

Analyst commentary: “Jost has a global market share of over 50% paired with further revenues resulting from the after market business. Demand is cyclical, making Jost’s performance largely subject to underlying market conditions with potential for moderate outperformance. Core markets, such as Europe, North America and Brazil, are expected to show a decent recovery this year, from which Jost should strongly benefit.”

Source: Deutsche Bank

Stock Market 4. Patrizia

Stock Market Graph of Patrizia stock on June 16 Graph of Patrizia stock on June 16


Markets Insider



Ticker: PTZIF

Sector: Asset managers

Market capitalization: €2.11 billion

Target price: €33

Target price upside: 40%

Analyst commentary: “PATRIZIA has been on an acquisitive growth track for many years, expanding third-party business while decreasing direct real estate exposure on its own balance sheet to virtually zero. The diversified, long-term-oriented AuM base delivers stable and recurring cash flows coming from a wide range of services.”

Source: Deutsche Bank

Stock Market 5. PVA Tepla

Stock Market Graph of PVA Tepla on June 16 Graph of PVA Tepla on June 16


Markets Insider



Ticker: TPLKF

Sector: Semiconductors

Market capitalization: €515 million

Target price: €31.00

Target price upside: 36%

Analyst commentary: “While the stock has done very well since our last update ( 70% compared to the Euro Stoxx200 Small Cap at 22% since 25 Nov 2020) we believe that even more upside potential is ahead. PVA is a classic equipment company whose stock tends to trade and react on the notion of potential further order improvement in the coming quarters. This is what we expect heading into H2-21, both in the core silicon business, but also the silicon carbide business.”

Source: Deutsche Bank

Stock Market 6. SLM Solutions

Stock Market Graph of SLM Solutions stock on June 16 Graph of SLM Solutions stock on June 16


Markets Insider



Ticker: SLGRF

Sector: Travel services

Market capitalization: €5.56 billion

Target price: €30

Target price upside: 66%

Analyst commentary: “We like Sixt due to a combination of short-term and long-term factors. Short-term factors: while Sixt made it through the crisis virtually unscathed, competitors struggled and had to go through financial restructuring. Sixt is back on the attack, while competitors are still self-absorbed; this should help Sixt to gain market share

“… Sixt also used the situation last year to make a big push in the US market, by expanding its network from 65 to 100 stations, including 10 airport stations taken over from bankrupt competitor Advantage. This move will result in disproportionate earnings growth in our view. Looking at long-term factors, we expect Sixt to be a beneficiary from the unbroken trends towards mobility and car subscription services, helped by its integrated IT planform ONE.”

Source: Deutsche Bank

Stock Market 7. Sixt

Stock Market Graph of SIXGF stock on June 16 Graph of SIXGF stock on June 16


Markets Insider



Ticker: SIXGF

Sector: IT hardware

Market capitalization: €368 million

Target price: €140

Target price upside: 18%

Analyst commentary: “SLM’s newly-released machine could be a real game-changer for the stock, in our view. The impressive ~20min video is still watchable on www.slm-pushingthelimits. com. In short, we think that the technological advantage that SLM possesses has probably increased by another few years. The productivity of the new system is outstanding, about 20x faster than a standard tool and about 5x faster than its (so-far) high-end machine.”

Source: Deutsche Bank

Stock Market 8. Verallia

Stock Market Graph of Verallia stock on June 16 Graph of Verallia stock on June 16


Markets Insider



Ticker: VRLA

Sector: Packaging and containers

Market capitalization: €3.8 billion

Target price: €40

Target price upside: 30%

Analyst commentary: “The company’s strong exposure to still and sparkling wines and spirits (constituting close to 60% of revenues) implies low customer concentration and a high share of premium products, which are less price sensitive, carry higher margins and benefit from stronger export demand.”

Source: Deutsche Bank

Stock Market 9. 888 Holdings

Stock Market Graph of 888 holdings stock on June 16 Graph of 888 holdings stock on June 16


Markets Insider



Ticker: EIHDF

Sector: Gaming

Market capitalization: £1.43 billion

Target price: £4.90

Target price upside: 24%

Analyst commentary: “888 is a pure Online Gaming company. It started off as a Casino-focused B2C operator, but has broadened out to cover the full spread of products, from Sports to Poker/Bingo. Unusual for a company of its size, it owns all of its own technology. The final piece in the strategic puzzle was the sports platform, acquired through the BetBright deal. This is now being fully integrated, and 888 is well advanced in migrating all customers across to its in-house technology.”

Source: Deutsche Bank

Stock Market 10. Britvic

Stock Market Graph of Britvic stock on June 16 Graph of Britvic stock on June 16


Markets Insider



Ticker: BTVCF

Sector: Beverage

Market capitalization: £2.53 billion

Target price: £9.50

Target price upside: 0.4%

Analyst commentary: “Moreover, with its focused execution, we expect Britvic to continue to offer midsingle-digit organic EBIT growth, with an even balance between organic sales growth and margin expansion. In addition, Britvic’s DM focus means that this organic revenue and organic EBIT growth is more defensive and less likely to be offset by FX when compared to most European Staples peers.”

Source: Deutsche Bank

Stock Market 11. Countryside Properties

Stock Market Graph of Countryside Properties on June 16 Graph of Countryside Properties on June 16


Markets Insider



Ticker: CSPLF

Sector: UK Housebuilders

Market capitalization: £2.57 billion

Target price: £5.21

Target price upside: 7.6%

Analyst commentary: “Countryside’s differentiating feature is its Partnerships division. This has been a key driving force behind its significant growth in completions. Partnerships specialises in estate regeneration (predominantly on brownfield sites), and it has been active for more than three decades. Its capital-light model reduces risks and generates high returns. In addition, we believe that the Partnerships and House Building divisions could be separated, which could be value accretive for shareholders.”

Source: Deutsche Bank

Stock Market 12. Future

Stock Market Graph of Future PLC stock on June 16 Graph of Future PLC stock on June 16


Markets Insider



Ticker: FRNWF

Sector: Publishing

Market capitalization: £3.28 billion

Target price: £33.21

Target price upside: 13%

Analyst commentary: “Future is a real example of management transformation. Growth has come through a combination of digital drivers – both advertising, and more significantly, eCommerce, as Future has become much more effective at monetising its substantial digital audience, and it has augmented its platforms and its range of information niches. LfL, digital revenues grew by 21% in the six months ended June, with online users up 31% to 311m. We expect moves to tighten online privacy to play well for Future (Google is set to block third-party cookies next year), as it has huge amounts of first-party data from its specialist/enthusiast audience, and that data should become increasingly valuable, driving up customer yields.”

Source: Deutsche Bank

Stock Market 13. Howden Joinery

Stock Market Graph for Howden Joinery stock on June 16 Graph for Howden Joinery stock on June 16


Markets Insider



Ticker: HWDJF

Sector: Building materials

Market capitalization: £4.58 billion

Target price: £8.90

Target price upside: 12%

Analyst commentary: “We believe Howdens has an attractive business model. It operates a decentralised model, with each depot run locally, giving managers autonomy to make key decisions, such as price setting and account management. This approach, along with its sole focus on the trade, enables depot managers to build strong relationships with local tradesmen that would not otherwise be possible through a retail channel (typically households replace their kitchens once every 15 years). We believe that this enables Howdens to generate sector-leading gross margins (which we expect to rise from 2020A levels of c.60% by up to 250bps over the next three years).”

Source: Deutsche Bank

Stock Market 14. Iqe

Stock Market Graph of IQE stock on June 16 Graph of IQE stock on June 16


Markets Insider



Ticker: IQEPF

Sector: Technology

Market capitalization: £414 million

Target price: £0.80

Target price upside: 54%

Analyst commentary: “IQE continues to be an attractive recovery story in UK tech, despite having already rebounded strongly after hitting lows during the pandemic, but still trading way down from the 140-180p levels achieved in 2017. Despite performing strongly in 2020, we see scope for further upside, given strong potential for better loading of IQE’s capacity, led by the ramp-up of the iPhone 13 (potentially four models featuring LiDAR) and better traction for Qorvo at tier-1 OEMs like Ericsson and Nokia in GaN-on-SiC for use in RF power amplifiers (massive MIMO) ahead of the ramp-up of C-band in North America.”

Source: Deutsche Bank

Stock Market 15. Royal Mail

Stock Market Graph of Royal Mail stock on June 16 Graph of Royal Mail stock on June 16


Markets Insider



Ticker: ROYMF

Sector: Logistics 

Market capitalization: £5.94 million

Target price: £7.63

Target price upside: 29%

Analyst commentary: “We believe that consensus forecasts underestimate the resilience of the business model post COVID (volume and price/ mix), and given the operational leverage in the business, our forecasts are materially ahead of the market. For FY March 2022, we forecast EBIT of £902m, which compares to Bloomberg consensus at £688m.”

Source: Deutsche Bank

Stock Market 16. Wizz Air

Stock Market Graph of Wizz Air stock on June 16 Graph of Wizz Air stock on June 16


Markets Insider



Ticker: WIZZAF

Sector: Airlines

Market capitalization: £4.50 billion

Target price: £60.00

Target price upside: 25%

Analyst commentary: “Wizz’s emergence as the #1 LCC in central and eastern Europe is the result of having grown passengers at a ~19% CAGR during the six years prior to the COVID-19 crisis, supported by faster growing economies than in western Europe, increasing air journeys per capita and weak legacy competitors.”

Source: Deutsche Bank

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