Investment recipes for high voltage second semester | Financial markets

The delay in rate cuts and rising geopolitical tensions have not stopped stock markets from continuing their rally. After a first half of the year in which economic results and resilience have boosted risk assets, investors are starting to prepare their portfolios for the coming months. Managers expect a more volatile second half of the year. Juan José Fernández-Figares, chief investment officer at Link…

The delay in rate cuts and rising geopolitical tensions did not become an obstacle to the continued rally of stock markets. After the first half of the year, when the economy’s performance and resilience provided a boost to risk assets, investors are starting to prepare their portfolios for the coming months. Managers expect a more volatile second half of the year. Juan José Fernandez-Figares, investment director at Link Securities, said political noise will shape stock markets in the short term. Although markets overcame political instability in the first half of the year, the European elections and the French draft brought this risk factor back to the fore.

Thus, the rise of extremist groups and the possibility of a game-changing situation are already very worrying for investors. The elections in France this weekend and the doubts left by the election debates in the United States are just a taste of what lies ahead.

Against this backdrop, managers are accelerating portfolio turnover. While hedge funds in the US are swapping tech for financials, in the Spanish market, banking is starting to lose its lustre. Thanks to results and corporate activity, companies have extended their rally; managers see its potential as limited and believe that the best asset to play the banking card is demand. Banks are being replaced by real estate and renewable energy companies, firms that have been overly punished by rising rates and are well-positioned to take advantage of the data centre boom. Cyclicals such as tourism and oil companies, as well as success stories such as Inditex, round out the value list.

Sellnex

With the stock down 14.79% year over year, analysts believe the telecom tower operator is undervalued. Alfonso de Gregorio, investment director at Finaccess Value, notes that investors have not stopped to appreciate the strategic repositioning carried out by the company. Cellnex has gone from being a company focused on growth through acquisitions to focusing on reducing debt. Simplifying its structure by selling non-strategic assets helped it regain investment grade. However, it remains 50% below the 2021 high.

Victor Peiro, director of analysis at GVC Gaesco, says Cellnex is “a story of growth, visibility and repeatability.” The expert argues that the market does not differentiate between companies with a strong capital structure and companies with high debt that are in a dangerous situation. The firm has a buy rating on the shares and puts the potential price at 64.6%, up to 50 euros per share, above the 44.4 euros set by the Bloomberg consensus.

In addition to the link between earnings and inflation, Renta 4’s research department notes the recent improvement in shareholder compensation. At the investor day in March, management confirmed a return to dividend payments, with a minimum of €3 billion in dividends to be paid between 2026 and 2030.

Inditex

Revaluations that accumulate throughout the year do not frighten managers. Although its shares are bordering on all-time highs (47.4 euros recorded on June 20), Joaquin Robles, an analyst at XTB, emphasizes management’s confidence in the growth of the business and the ability to continue to record earnings of over 10% in the next quarter. Among the initiatives taken to achieve this goal, the expert points to emergency capital expenditures of 900 million per year in 2024 and 2025 to support the expansion of logistics. “The company benefits from a strong global presence and a strategy that integrates brick-and-mortar and online operations,” emphasizes David Azcona, chief economist at Beka.

Bankinter analysts highlight that with a net treasury position of $11.5 billion at the end of the first quarter, Inditex has room to improve shareholder rewards. Using last year’s accounts, the Galician company will pay €1.54 per title, which is 28% more than the fee paid last year.

Repsol

Among its main strengths, Alfonso de Gregorio highlights its solid financial position. With liquidity of $10,332 million, the oil company covered all short-term debts more than four times. At the end of the first quarter, its net debt reached $3,901 million.

For their part, Renta 4 analysts believe that the company will continue to receive support from high crude oil prices thanks to robust demand and supply driven by OPEC+. In a market such as Spain, where shareholder remuneration has a privileged place, the firm’s analysts note the attractiveness of Repsol’s shareholder remuneration. Through dividends (4600 million) and through share buybacks (5600 million), the company expects to distribute 10 billion. This is equivalent to an average annual return of 15%.

Merlin and Colonial

Although rates will remain high longer than expected, analysts believe that the penalty accrued by SOCIMI is exaggerated. If Renta 4 and Bankinter analysts prefer Colonial, then at GVC Gaesco they choose Merlin.

Over the last four years, Colonial has gone from being listed at a premium to being one of the SOCIMIs offering the biggest discount. Renta 4 analysts note that due to remote working and excessive debt, “the market has turned away from the company, which has one of the best portfolios of assets in Spain and Paris.” Experts note the high occupancy rates of properties and the leadership in the process of rent increases.

GVC Gaesco analysts highlight Merlin’s management team and logistics projects focused on data centers, a business that is in full swing. The company is completing a $1,000 million capital increase. The funds raised will be used to develop data centers.

Activate energy

Low energy prices have become a burden for the subsidiary of the Entrecanales group, which surprised the market at the end of May by revising its EBITDA downwards. Although the reaction of investors was immediate (it fell 5.29% on May 25, reaching a decline of 31.5% in a year), Carlos García González, manager of variable income at Mutuáculos, points out that the company has a cover that softens the impact of the fall in prices. “This dynamic could change as new data centers are developed, which will lead to new investments in the electric grid,” he points out. García believes that the future of energy companies will be more favorable, and Acciona Energía has room to recover. The company is trading at a discount of 20% of its installed capacity.

Banking

The banking sector is enjoying a pleasant moment on the stock market, thanks to strong results and corporate transactions. As we approach two years since the end of zero rates, European banks have accumulated a 47.7% appreciation over the past 24 months. Although some firms have started to unwind their positions in the sector, managers believe there are still opportunities for some companies. Victor Peyrot, an analyst at GVC Gaesco, picks Santander. Its strengths include results in line with targets and an attractive shareholder remuneration policy, combining cash and share buybacks.

Ignacio Cantos, investment director of Atl Capital, picks Unicaja, which has been left behind. In two years, the company’s shares have grown by 43.5%, compared to the sector average of 15.19%. “The new CEO and the strategic plan help to provide shareholders with peace of mind,” he emphasizes.

Outside the Spanish market, Mutuativos managers choose Monte dei Paschi. The company shows very well the transformation of the banking sector in Europe. “It was a quasi-failed bank, nationalized and in free fall. It is now a profitable enterprise with excess capital,” they emphasize. The management company does not rule out that banking groups are interested in the Italian company.

Tourist

Tourism plays a prominent role in managers’ portfolios. Renta 4 analysts name IAG as their favorite. Thanks to the growth in demand, the airline has exceeded pre-pandemic levels in key operating indicators. Experts welcome the efforts to reduce debt and attractive liquidity levels.

Victor Alvarez, Head of Variable Revenue at Tressis, chooses Amadeus. The expert highlights financial targets for 2026. The company has set a target of double-digit revenue growth, margin expansion and cash flow generation of around $4 billion.

Aisne closes the list of tourist attractions. XTB analysts see an airport manager as the most attractive option to ride the tourism wave. Noteworthy is the gradual increase in the number of flights, expansion into other countries such as Brazil, and the growth of the retail business as commercial space expands.

Rheinmetall

Geopolitical risk, which has dominated the global panorama for two years, and increased defense spending due to NATO demands are the ideal breeding ground for defense companies to extend the rally. Diego Morin, an analyst at IG, highlights the good growth prospects of the German company Rheinmetall. The order book has increased by 40%, sales are set for the next six years, and the company is expected to achieve a net cash position starting next year. Although the company will grow by 65.75% in 2024, the consensus of analysts consulted by Bloomberg is that it will still reach 590.6 euros per share. That is, they give him a potential of 23%. The company lacks sales advice, with a majority (78.9%) recommending buying the stock.

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