An acceleration in European economic growth should underpin a recovery in revenues and profits despite a fourth-quarter earnings season that has been mixed thus far, strategists at Barclays (LSE: BARC.L - news) say.
Although there has been about an equal number of negative earnings surprises as there have been positive ones, with slightly more misses than beats on a revenue basis, Barclays believes that investors should "keep the faith" in a European earnings recovery.
"With recent data confirming forecasts of acceleration in European economic growth in 2014, we think the consensus materially understates the scope for a recovery in both revenues and profits," strategists at Barclays write in a note, adding that earnings per share could expand at "twice the rate currently projected by consensus."
Barclays retain an overweight stance on sectors such as financials, materials, industrials and consumer discretionary stocks, the prospects for which should improve the most as top-lines and bottom-line earnings pick-up.
The bank holds below-benchmark weightings in defensive sectors such as utilities, telecoms and consumer staples.
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