Europe's car stocks rally as BAML backs autos as 'contrarian' buy

LONDON (Reuters) - Europe's autos and suppliers index climbed 2.4 percent on Tuesday after Bank of America Merrill Lynch analysts recommended contrarian investors buy select carmakers after a survey showed investors grew more bearish on the sector.

Autos fell to the 15th most favoured sector out of 19 European sectors, from 8th in February, BAML's March fund manager survey found.

But this pessimism on the sector combined with valuations near all-time lows make for a "very compelling" contrarian argument for buying European carmakers, according to BAML analysts.

"After a dismal 2018 for the EU autos sector, we see pockets of value emerging with the bright spot being the OEMs (original equipment manufacturers), specifically German versus French," they wrote.

The STOXX 600 autos & suppliers sector index sank 28 percent in 2018, but has had a strong start to 2019 - up about 14.3 percent year-to-date. On Tuesday, it was the best performing sector in Europe and set for its best day in a month.

BAML's top picks are Daimler, VW, Porsche, and Peugeot owner PSA.

The auto analysts said they are more cautious on suppliers but remain positive on tyre stocks, preferring Continental over Valeo.

(Reporting by Helen Reid, Editing by Josephine Mason)