An abnormal year dries up every spring This is the saying that, a priori, could be on the minds of many investors for next year. With one month to go before the end of fiscal 2024, stock market returns, in general, are more than positive this year. And although large increases can be followed by a decrease in potential, experts believe that the The Spanish stock market has all the ingredients to continue to do well next year, with prospects macro increasingly satisfactory in this country and solid corporate profits which support valuations.
“There have rarely been circumstances like these, where everything comes together: macro, THE microphone and valuations, to invest in the Spanish stock market with such an enormous margin of safety”, described José Ramón Iturriaga, fund manager of Abante Asesores, during the third business forum of the Active Management League, organized by elEconomista.es.
“The market today is more inefficient than ever, we rely on algorithms, passive management, baskets of securities from investment banks… this means that there are more opportunities for those of between us who focus on the fundamentals, who are fewer and fewer. These fundamentals, in the case of the Spanish stock market, are extraordinary“, he added.
This good momentum of the national market is shared by the rest of the participants in the meeting, who value the role of active management in a context like the current one. “It is important to know how markets work. We come from a time when central bank behavior, rate scenario and geopolitical issues took center stage. This results in a market that is very oriented from the level macro and with little reward in company selection. According to the scenario macro becomes clear, that this is the path we are on, the the market will focus on corporate profits, and good years could come to benefit from active management”, underlined in the same sense Rodrigo Utrera, head of variable income at Santander Asset Management Spain.
Gonzalo Lardiés, head of variable income at AndBank, included a variable that the European market is at a disadvantage compared to the American market, namely the regulatory risk. “The situation in the United States and Europe is diametrically opposed. While there everything is moving towards deregulation, here, which is already in the middle of a complicated geopolitical situation, there are now additional obstacles in terms of regulation The part “tax legislation generates risks in terms of additional perspectives”, underlined the expert, who added that the market may currently be at the “peak of regulatory risk” which will not worsen. , but which reduces the visibility of companies.
Carlos González, director of investor relations at Cobas Asset Management, also highlighted strong earnings as a must-have value. “With inflation not going away, the companies that can protect themselves are the ones that will achieve strong and growing profits in the years to come.”
“The ‘little ones’ are the ones who will have an easier life with the little ones”
In the context of falling rates towards which the market is heading, the smallest companies are those which will have the easiest life. Here’s how Carlos González explains it: “We come from a few years where there were not good performances on the stock market, but there are companies that generated free cash flow very interesting that the market did not see for different reasons, and We think there will be a period where earnings are better for some companies.“.
The more industrial profile of SMEs and their greater sanction due to the high interest rate environment have made these companies less attractive and investors have looked for other dynamics to position themselves, according to Lardiés, who adds that “the valuations are there and it is a long as investors will focus their attention there “It must be remembered that half of the Nasdaq Composite is negative and this means that small technology companies do not benefit from a very favorable environment either despite the valuations. “, indicates the equity manager from AndBank.
And that’s it, the manual This tells us that high rates penalize small-cap companies more, as Rodrigo Utrera points out. “We are emerging from a downward rate dynamic for many years and now we are moving towards a scenario of normalization of rates in the medium term. In small capitals We are seeing interest from private investors and other corporate buyers.and this is an indicator that there is value in this segment,” he adds.
The expert emphasized that as management professionals, what they want is for the investor “to start seeing this value.” small and mid caps can benefit from a more favorable competitive environment than before,” he concluded.
“Renewables have medium-long term potential”
The renewable energy segment, heavily sanctioned in recent years, also appears on the list of these managers. “We were investing in Elecnor, which performed very well last year and continues to do well this year. In the energy sector, we see opportunities in the oil and gas sector. We have seen that before on the international scene and we are also doing it now in Iberia, where we have recently added companies such as Repsol and Técnicas Reunidas to the portfolio,” explains the director of investor relations at Cobas Asset Management.
Gonzalo Lardiés explained at this point that one of the problems facing the renewable energy segment is that the market “neglects future expectations too enthusiastically”, as is also currently the case with artificial intelligence . “We are now purging the excesses of these years following the pandemic, where inflation remained longer than expected. Many projects were not carried out with a rate scenario like the one we had. The sector is straightens. We see a strong segment in the medium-long term. In a complex environment, we prefer small businesses, where these risks are somewhat mitigated, to small businesses where they have many projects up front and visibility is less. We like companies like Solaria, Grenergy or Acciona Energía.”
Outside of this sector, he opts for companies like CIE or Gestamp in the industrial part linked to motorsport. He also highlights real estate and places particular emphasis on SMEs, which are “where we see the greatest potential, but here we have to be more selective and large numbers are not worth it”.
“Banks continue to benefit from very clear support due to their valuation”
By sector, the banking sector continues to be among managers’ favorites, even if it leaves behind spectacular years in terms of profitability. Especially in the case of José Ramón Iturriaga, who emphasized that, in his case, “being patient worked”. “Now I look forward to it, I think Banks remain cheap and above all see the prospects they offer. What it does is continue to provide very clear support through assessment.”
The fund manager Abante Asesores cited as an example CaixaBank, an entity that pays a dividend yield of 9% and which, in his opinion, is a very clear symptom of the extraordinary valuation at which it is listed. “If we take the guidelines that Caixa gives us, which is usually a fairly conservative bank, I think that yields will stabilize in the medium term at a double-digit multiple of between 16 and 17%, which justifies valuations way above where we are now,” he continues. Thus, in a context where rates should not be higher than today, the manager recognizes that “there are other sectors which could have more potential”, but the banking sector will continue to delight investors.
Among the segments in which the investor should be located, the Santander Asset Management expert also highlighted defense companies in Europewhich according to him offer very attractive entry levels, and supports Iturriaga’s idea regarding the financial sector, which “is currently in a very positive dynamic”. “You have experienced a perfect storm, you have done your homework and we now have a highly capitalized financial system, ready to set sail in a better macroeconomic moment,” he continues.
“In Spain there are leading companies with minimal valuations for years”
Rodrigo Utrera valued national companies during this meeting and highlighted that in Spain there are leading industrial companies that are references in their sectors and that valuations have been at low levels for many years. The pharmacist is one of his favorites at European and national level. “We love the pharmaceutical sector, which is experiencing curious dynamics at the European level. Over the last 10 years, the Ebitda of large European pharmaceutical companies has increased more than that of American companies, but the valuation in figures is worse among Spanish companies and the discount is close to historical maximums, because ultimately l Indexing pulls on the large index fingers and drags to whatever is below them.
Iturriaga believes that the entry point for renewable energy is currently very attractive. In addition, the expert believes that the real estate sector now constitutes another good opportunity, notably thanks to “the promotion aspect, given the lack of supply in Spain”. He also sees opportunities in the defense and automotive components sectors, because “cars can fly, but they’re not going to disappear.” The tourism sector also presents a great attraction for Iturriaga, with “Spanish companies which have been very successful and whose valuations remain very attractive”. At this point he names Meliá and IAG.
Carlos González reaffirms the great opportunities that currently exist in the Spanish stock market and includes Gestamp, Técnicas Reunidas and Elecnor among his favorites. In addition to this, the executive talks about Atalaya Mining, which is a Spanish company listed in the United Kingdom and dedicated to the production of copper and other metals essential for economic growth and the energy transition. “The capitalization [de Atalaya] is less than 600 million and generates a free cash flow of 100 million. We’re talking about a company that has ratios of 4 to 6 times earnings and has added appeal besides the fact that copper is hot. This is a company with a very clear positioning, so large companies may want this sector for business opportunities,” he concludes.
