Editor’s note: This article was first published in August 2012; the results reported for Gamesa and Ezentis, all share prices and resistance levels, and the ban on opening new short positions in Spain are figures and rules of that moment. This article reflects the author’s views and own holdings in August 2012 and is kept as a historical record; it is not investment advice.
Speaking personally, Gamesa and Ezentis are two stocks I hold in my portfolio, and I have increased my position in both this week. As a firm, we are putting together our investment portfolio with a five-year horizon. To do so, we pay less attention to technical analysis (although we do consult it) and more to the companies’ fundamentals.
Something curious, which has happened for the first time, is that 8 out of 10 of our experts singled out Gamesa and Ezentis, seeing them as oversold, undervalued stocks with high potential in the medium term. Best of all, the technical analysis of both companies is favourable in the short term, so strong rebounds in both cannot be ruled out.
Gamesa
Even after falling 60% since January, announcing that orders from China and India had stalled and reporting losses of 33 million in the first half, our experts insist that the share price has been punished far too much.
What makes it hard for Gamesa to achieve a definitive change of trend are the “scares” it has given in the past, along with poor technical recommendations, which have made it “cannon fodder” for short sellers. “Gamesa only needs two pieces of good news in a row and quarterly results that beat expectations, and that won’t be long in coming,” several analysts say. So for long-term investors, once the global economic situation improves, the sector and the company’s position within it make this one of the stocks with the greatest upside potential in the whole index.
While construction companies and banks would find it hard to get back to the levels they reached in 2006–2007, Gamesa could beat its old levels comfortably, since this sector will probably share out the market with nuclear power.
Technical analysis: Once it breaks above €1.32, the stock could head quickly towards €1.45–€1.50, the first resistance zone. If that is broken on strong volume, it could go to €1.80 and even €2.14. Breaking above €2.40 would change everything for this stock. We should bear in mind that the stock could rise very quickly as short positions are closed, given the ban on opening new ones.
Ezentis
Our experts cannot understand why the shares did not soar after this company presented its results, since it went from losses of 88 million to a net profit of 2.45 million. That, without a doubt, shows how well the company is being managed in times of crisis.
Diversification, internationalisation, lower debt and more contracts are the ingredients that make this company very attractive in the short, medium and long term. Several analysts argued that when big money returns to Spain and carries out one of its main strategies (recapitalising small-cap companies), Ezentis will not go unnoticed by anyone who studies it closely, so it could take a very large slice of the pie.
Technical analysis: Favourable in the short term. It has an all-time low at €0.12 and recent resistance at €0.135. After the sideways movement of recent weeks, once it breaks above €0.143 the stock is expected to head towards €0.155 and soon reach €0.17, although 3 out of 8 say we could even see the share price double if it breaks through resistance on heavy buying volume.
Other stocks we may add to our portfolio for September include Deoleo, Faes Farma, Abengoa and some of the S&P 500 stocks we have already analysed.
Featured image: Luis García, CC BY-SA 4.0, via Wikimedia Commons.
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