Editor’s note: This article was first published in October 2015. All share prices, price targets and market context it cites, including the 2015 sell-off, China, emerging markets and the Catalonia conflict, refer to that moment.
There are many open fronts in the markets right now, and they have caused a spectacular fall in stock markets around the world over the course of 2015. I don’t know what will happen with China, I don’t know what will happen with emerging markets, and I certainly don’t know what will happen with Catalonia and Spain.
In other words, I have no idea whether the IBEX’s falls are over or whether, on the contrary, it is making a pullback before dropping again in the coming days. The fact is that nobody knows what the stock market will do by the end of 2015 or early 2016. But we do know that sooner or later it will rise again.
That said, it’s a matter of acting on the assumption that the market has finished falling and is going to rise, so that we don’t miss out on the rally in certain stocks, while at the same time keeping in mind the other possibility: a continuation of the bearish scenario.
Either way, we’re already finding some bargain prices. So in the recommendations below, if we invest, we’ll do it using the DCA strategy in case of a bearish scenario, which basically means averaging down. And we’ll take into account the dividends of the following recommended stocks.
1. ArcelorMittal
This company has fallen astonishingly. I remember analysts recommending investing in it if it broke through a resistance level around €14 or €15. Well, right now it trades at €4.63. And given this company’s fundamentals, the truth is that at this price it’s a bargain.
In my opinion, the fall has been exaggerated, and the logical thing would be for the company to return to levels above €10. When? I have no idea, but at this price it’s worth investing, while being prepared to average down a few times. (See: The possible short- and long-term scenarios for ArcelorMittal)
2. Repsol
Just as I recommended forgetting about Repsol when the market was strongly bullish, because any company was going to rise more than the oil company at €17 or €18, right now, at €10 and €11, my recommendation is to buy. And if it falls, buy more, because that’s exactly what Repsol is worth: about €18, and in time we’ll see it at €18 or €21 again.
3. Banco Santander
If everyone was recommending it at €7, why don’t we like it anymore below €5? Is it because a purchase isn’t worth it unless we buy expensive? Although it would have been much better to buy it in the summer of 2012 below €4, for those of us who missed that opportunity, we can certainly start buying at these prices, and if it falls, buy again.
Probably just as profitable (or more), but with caution
4. CaixaBank is a bank that can grow much more in the long term. The price is tempting, but… this company could still give us a scare or two because of the Catalonia conflict, so it’s possibly a good buy, but with caution.
5. Sacyr we’ll name as a risky stock at the moment, although it has once again become very “cheap” at €2 (not because of its fundamentals). Still, if we enter another global recession, it’s a truly frightening company, but if stock markets turned bullish again, we’d have a target back towards €3 and €4. Speculatively profitable, but caution is a must.
In short
If we want to play it safe, Repsol, Santander and ArcelorMittal: if we follow the DCA strategy properly, it won’t be long before we have an excellent margin of safety in our investments.
As I was writing these lines, I watched the IBEX go from rising more than 1% to losing 0.80% in a few minutes. That shows how volatile markets are right now, and how important it is to focus on the long term with the right strategy.
See also: Which stocks to invest in for 2016 if you’re after dividend yield
Featured image: Borvan53, CC BY-SA 4.0, via Wikimedia Commons.
