Editor’s note: This article was first published in January 2016. It is a market call from that month: the IBEX falling more than 20% with support at 8,800 points, specific price levels for Repsol, CaixaBank, FCC and Santander, and worries about China, oil, emerging markets and a possible Brexit.
Some people blame the falls in the Spanish market on political uncertainty. A common habit among some analysts is to watch something happen and then go looking for an explanation of why it happened. But Spain’s political uncertainty is obviously not what is also dragging down Wall Street and the Asian markets.
Others said there was nothing to worry about when the first falls appeared, assuring us that it was a very healthy and necessary correction for indices that had risen a lot in recent years. Today they practically see the end of the world. When the first falls came, they told us: “Those of you who are out of the market, take advantage of the dip to get in.” Today, having already swallowed a drop of more than 20%, they tell us the chart doesn’t look good at all and that we are already in a bear market… Sell before it’s too late!
And the truth is that the IBEX chart doesn’t look good, and the pile of open fronts looks even worse. Seeing George Soros say this looks like the 2008 crisis certainly doesn’t help either. It isn’t just Spain’s political uncertainty. It’s the slowdown in emerging markets, China’s economic slump, the fall in oil prices, the possible consequences of governments’ monetary policies, a possible Brexit… in other words, practically the end of the world (as on so many other occasions).
Meanwhile, retail investors keep asking: “What can I invest in this year? What do you think the markets will do in 2016?” Some say the stock market will go up and some say it will go down. One of those opinions will turn out to be right, but the best advice I can personally give in these cases is also the most honest you’ll find: I haven’t got a damn clue what the stock market will do this year, and neither does anyone else. But whatever it does in the coming months, sooner or later it will stop and go back up. Bad companies will get into trouble, and good companies will do well.
Since our job isn’t fortune-telling, and as far as I know analysts haven’t studied stock market futurology, all we can do is see these falls, however long they last, as an opportunity to buy and build an excellent investment portfolio that will later give us an excellent margin of safety.
A few months ago we recommended 5 stocks to buy. I picked them thinking that the falls were most likely over. Now I think they will most likely continue, or not, it doesn’t really matter, because once again we recommend the DCA strategy to average down on certain stocks that are reaching very attractive prices. Some of them are the same ones we named before.
I’d also like to remind you of our recommendation of 5 US stocks we expect to deliver a good dividend yield.
To begin with, the support level the IBEX should not lose if things aren’t to get more complicated is 8,800 points. So far it has held that support with a rebound, but we don’t know whether it will hold or break later on.
In the meantime, these are the stocks I’m personally starting to buy on the dips:
1. Repsol
Repsol’s technical situation can be described as free fall, which means it has lost all support and is making new lower lows with no solid support in sight. Repsol’s problem is obvious: the fall in the price of oil. Seeing Repsol below 10 euros a share means that, technically, a speculator should get out of the stock as fast as possible. But for the long-term investor, it’s clearly attractive at these prices, and it would be at 7 euros too.
Some people ask: “Why don’t you wait for it to fall further?” The answer is simple: “Because I don’t know whether it will fall further. If I knew, I’d open a short position against Repsol and make a fortune.”
Repsol, in turn, is dragging down Sacyr and CaixaBank.
2. CaixaBank
It’s a bank I’ve always wanted in my portfolio, and taking advantage of these falls and the damage Repsol’s share price is doing to it, this is without doubt a good time to start buying CaixaBank shares, because sooner or later this stock will trade above 4.50 euros.
3. ArcelorMittal
We already explained the possible scenarios we saw for ArcelorMittal, and it seems to be leaning towards the one where the falls continue. Some people compare ArcelorMittal with Abengoa, but it’s a company we expect to come through the situation its sector is going through.
However, since we don’t rule out that the stock keeps falling as far as it sees fit, those without the stomach to watch their investment drop had better stay out. Personally, I’m averaging down on this stock, although with a speculative system: given that it’s showing a predictable daily pattern (a spectacular fall first thing in the morning, a rebound and then another fall), I’m buying on the drop and selling 50% on the rise through conditional orders. A kind of crude scalping, but effective so far.
FCC and Santander
Want to invest better than Bill Gates? Bearing in mind that Gates bought FCC shares, if I remember correctly around 14 euros, and many investors fell over themselves to buy during that rise, I think buying below 7 euros is better than buying above 14. I’ve started accumulating FCC shares.
And Banco Santander… what can we say? When the market is rising, the advice from banks is almost always the same: buy Santander, Telefónica and Repsol. Well, they’re now cheaper than when your bank manager recommends them to you. I’m personally not very keen on Telefónica, but I love Santander at 4 euros or below.
Finally, these days I’m keeping an eye on Ezentis again, to see whether to go back into this company. I bet heavily on it in the past and didn’t sell when I was up more than 300%; in the end my safety stop-loss was triggered with a measly return of around 20%. That wouldn’t hurt so much if I hadn’t almost quadrupled my investment in the company at one point.
Featured image: Luis García, CC BY-SA 3.0, via Wikimedia Commons.
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