12 changes to this Top Picks portfolio

Stockmarkets have continued in buoyant mood globally well into 2017, with many, including the FTSE 100 and the S&P 500, hitting all-time highs. European markets have done well too, although gains for the STOXX Europe 600 have been more modest.

But, after the latest quarterly review, Barclays' European 'top picks' portfolio still offers average upside potential of 18%, with average potential to its upside cases of 42%.

There have been 12 changes this time, with some big names losing their place at the top table. The analysts still favour a value approach, backing stocks with earnings momentum over low-volatility shares, which they believe "still look 15% overvalued".

Once the dust has settled, the portfolio of 26 stocks – half of which are listed in London - trades on a forward price/earnings (PE) ratio of 16.2 versus 14.2 for the STOXX 600. However, earnings per share (EPS) are expected grow an average of 20.6%, almost three times faster than the wider market.

From a UK perspective, oil major BP is removed from the list, as are fellow oilies Petrofac and Ophir Energy. Elsewhere, private equity firm 3i Group and marketer WPP are also out. Here are the three London-quoted heavyweights that take their place.

Glencore

Coming in is mining giant Glencore. Barclays analyst Ian Rossouw explains that there is an "unwarranted concern over its asset quality" and expects a broader change in sentiment towards the company.

He points out that the firm's copper resource grades are higher than its peer group; its coal business is equally, if not more, competitive; and its unit costs are lower and cash profit higher. Further, "it is difficult to argue that Glencore's industrial and marketing assets are anything other than tier 1 businesses".

Barclays is positive on Glencore, sticking a 390p target price on its shares, suggesting upside of 25% on the current 310p price. This is a view shared, as we highlighted last week, by fellow broker UBS, which has the same target price.

"We believe Glencore is in a strong position to step up returns to shareholders and benefit from the cyclical recovery in copper and zinc prices," UBS analyst Myles Allsop explained. "We expect this to drive meaningful upside to the share over the next one to two years."

AstraZeneca

Another addition to Barclays' list is drug major AstraZeneca, despite a "tough year" coming up, with the dividend of 4.4% uncovered by earnings for the third year in a row. The broker sees 20%-plus upside from Astra's current price of £49.46 to £60.

Analyst Emmanuel Papadakis accepts that his thesis could be thrown into turmoil depending on the results of the firm's key immune-oncology trial, MYSTIC, but sees the risk of total failure as near zero. He notes that Astra's "suite of supporting pipeline assets is broad", with many due to deliver key news in 2017.

Astra is another stock also backed by UBS, with Jack Scannell expecting a substantial stock move on positive news regarding MYSTIC and a re-rating thereafter.

Nex Group

A company Barclays is less bullish on, but still brings into its portfolio, is financial services firm NEX Group, formerly named ICAP before the sale of its broking arm to Tullett Prebon in November for £1.1 billion.

This leaves the re-born company with two main divisions, electronic trading and post-trade services. It has a 615p target price, 7.1% potential upside from its current 573p level.

NEX has replaced 3i as Barclays' top pick in the diversified financials sector due to the potential for underlying growth and multiple re-rating. Analyst Daniel Garrod expects "a better trading volume outlook for 2017 versus 2016 and regulatory pressures driving customer demand for post-trade and risk optimisation services".

"NEX has outperformed the market by 34% year-to-date versus the FTSE All-Share's 2.9%," Garrod added. "However, we still think the valuation is not stretched at 18.3 times 2018E price-to earnings."

European-listed changes

A duo of European oil-based companies are also in: Spain-listed Tecnicas Reunidas, which replaces Petrofac; and Swedish exploration and production company Lundin Petroleum, Ophir's replacement which has core operations in Norway and South East Asia.

Banco Santander replaces Société Générale in the banks sector and WPP's like-for-like is Germany's Scout24. Swedish-Swiss conglomerate ABB and German retailer Metro AG make up the additions.

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.