JPMorgan picks three UK defensive stocks to watch

JPMorgan has kept its 'overweight' rating on UK-listed consumer goods and staples stocks Diageo, Reckitt Benckiser and Imperial Brands, saying the companies are "well positioned" going into the second half of the year.

In its review of the wider European staples sector following recent second-quarter and first-half results, JPMorgan said two thirds of companies beat expectations with sales and margin figures, while also giving optimistic outlooks. This showed that they are able to manage slowing inflation along with rising margins.

"While EPS have seen the headwinds from FX, better top line and margin have led to slight increases in our organic EBIT growth and should be supportive to momentum in H2," the bank said.

The European staples sector currently trades at 20 times 2024 earnings on average at a 58% premium to the market, down from a 90% premium last autumn.

"While we note the sector underperformance year-to-date due to macro (rising bond yields) and preference for cyclicals, we think the sector is well set for an outperformance given: 1) positive H2 EPS momentum from balancing top line deceleration and margin increase, and 2) appealing relative valuation."

"This should benefit quality names at a reasonable price," JPMorgan predicted, highlighting UK names Diageo, Reckitt Benckiser and Imperial Brands among other picks across Europe.

All three stocks were making small gains on Monday morning in London.