Top share picks for 2024: FTSE 100 stocks among nine to own

Shell (LSE:SHEL), Aviva (LSE:AV.) and Standard Chartered (LSE:STAN) are among the 2024 top picks after City bank Jefferies named 24 favoured European stocks where its view differs from the consensus.

The list also highlights the recovery potential of Prudential (LSE:PRU) and components supplier RS Group (LSE:RS1), and flags the emergence of Deliveroo (LSE:ROO) as a quality growth company.

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The other London-listed stocks are BHP Group Ltd (LSE:BHP), Smurfit Kappa Group (LSE:SKG) and Tritax Big Box Ord (LSE:BBOX) REIT, with L'Oreal SA (EURONEXT:OR), Heineken NV (EURONEXT:HEIA), Novo Nordisk A/S ADR (XETRA:NOVA) and Carrefour (EURONEXT:CA) among the 15 European names.

Jefferies believes that the strong cash flows of Shell, Aviva, Standard Chartered, BHP and Deliveroo provide optionality on excess cash returns, M&A or reinvestment. “We think these companies have multiple levers to reward investors over the next 12 months.”

Shell, whose shares have fallen back from October’s record high of 2,771p is backed with a price target of 3,000p, which compares with 2,520.5p at the start of this week.

Jefferies expects a dividend increase of 10-15% with fourth-quarter results on 1 February, part of a market-beating projected yield of 12% for 2024 that includes 5% from the dividend.

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As well as praising Shell’s energy transition strategy, the bank likes the oil giant’s position in the “right part” of the LNG market such as through longer-term contracts.

For the first time in many years, Jefferies says an improved operating performance is central to the Aviva investment case.

It adds: “Earnings should start to shift towards capital-light business, which is well-timed given improving market conditions and should warrant a re-rating.”

Jefferies forecasts a best-in-class capital return yield of 11% for this year, underpinned by the strongest free cash flow amongst its peers.

A target price of 480p also reflects a more favourable outlook in general insurance, where the bank is 7% ahead of 2025 consensus, and expectations for 2023’s £330 million buyback to grow by more than market expectations at 10% a year.

The bank’s upbeat stance on Standard Chartered, which it values at 1,100p, reflects hopes for $5 billion (£4 billion) of buybacks in 2024 and 2025 - some 37% ahead of consensus.

It expects Standard to deliver good revenue momentum next year, resulting in earnings that are 13% above market forecasts and 7% ahead for 2025.

The bank backs former blue-chip BHP to be one of the best performers in its global metals and mining coverage in 2024, leading to a price target of 2,900p.

It said: “We believe higher than expected iron ore and metallurgical coal prices should lead to higher than expected earnings, cash flows and capital returns for BHP.”

Among other FTSE 100 companies on the list, Jefferies believes Prudential is better insulated than the market thinks to worries over mainland Chinese asset risk, regulatory reform and macroeconomic pressures.

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It expects pent-up demand after the easing of pandemic restrictions to be replaced by structural cross border sales flow, driven by the need for Chinese consumers to diversify their asset and currency exposures.

The bank, which has a price target of 1,800p, adds: “More broadly, we expect Prudential's sales to grow across South-East Asia, driven by the emerging Islamic middle class in Malaysia and the previous restructuring of the Indonesian business.”

The past year has seen multiple headwinds for RS Group, but Jefferies expects next year to be better due to recovery in the electronics cycle, sharper operational execution under a new management team, and completion of a £30 million cost savings programme.

The shares trade close to a trough of 15 times earnings compared with 13-26x through the cycle, but Jefferies has a target price of 950p based on considerable spare capacity in a fragmented and consolidating industry.

Packaging firm Smurfit Kappa (SKG) has a price target of 3,750p as Jefferies expects EU containerboard prices to hike off their lows in the first half of 2024. “We see SKG as mispriced given where we are in the cycle, its earnings resilience being under-appreciated.”

On Deliveroo, Jefferies believes the market is too pessimistic on gross transaction value and earnings growth. It added: “We think 2024 will confirm Deliveroo as a quality growth company with equity free cash flow ramping vertiginously and a net cash balance sheet.”

With Deliveroo suitably capitalised to fund organic growth, it believes management may undertake another return of surplus capital after October’s tender offer at a 20% premium to the undisturbed price.

The other UK firm on the list is Tritax Big Box as rental growth and development profits prove more resilient than consensus estimates. The REIT trades on a 22% discount to Jefferies’ forward net asset value estimate and carries a 4.9% dividend yield with expected payout growth of 4% a year.