Credit Suisse adds to overweight position on insurers

Credit Suisse on Wednesday reiterated its upbeat stance on the insurance sector, adding to its ‘overweight’ position and recommended investors on “sustainable” yield plays.

However, the broker pointed out how the sector was “very sensitive” to credit spreads – which were pricing in 60% odds of a recession.

Nonetheless, in the opinion of Credit Suisse strategist Andrew Garthwaite, the sector offered the best combination of yield and dividend per share momentum.

Axa and Aviva were sporting dividend yields of 5.7% and 5.5%, respectively, Garthwaite said in a research note sent to clients.

As an investment style, dividend yield (with growth) had followed bond yields, which he “struggled to see rising significantly”.

Among the companies he was focused on were those offering high cash flow returns on investment, good cover in terms of free cash flow and yielding over 3.0%, such as Senior, easyJet, Capita and ITV.

UK regulated utilities were trading near all-time extremes on yield relatives, he added, whereas Continental European regulated utilities look cheaper, he added.

Price-momentum as an investing style was now oversold and Beta (Travis Perkins), despite a bounce, was still “abnormally cheap,” he said.

Within the same research note the strategist downgraded small capitalisation stocks in Europe from ‘overweight’ to ‘neutral’, largely because of slowing economic momentum.

Garthwaite stayed at ‘overweight’ on UK large-capitalisation stocks and US small caps.