Editor’s note: This article was first published in July 2013, with the IBEX around 7,500, Portugal in political crisis and Spanish banks recently downgraded; the share prices, Telefónica’s debt, Abengoa’s share classes and the reverse splits at Banco Popular and Ezentis are from that time. These are the author’s July 2013 views and holdings, kept as a historical record; they are not investment advice. Banco Popular was resolved and sold for one euro in 2017, wiping out its shareholders, and Abengoa went through insolvency proceedings from 2015 onwards.
Let’s try to invest with our heads and start following the advice of the great investors, and Warren Buffett in particular: “Avoid market noise.” That way we avoid situations where the stocks we were told to sell six months ago turn completely bullish and, after rising 300%, are now recommended as a buy, as happened with Gamesa. These things happen because when we look for investment advice, what we usually find is short-term speculation advice.
Which stocks can we invest in today? Today, none at all. Following Portugal’s political crisis and the downgrade of the Spanish banks, the IBEX will probably soon test 7,500 again, and since speculation and technical analysis win out in the stock market in the short term, if the IBEX loses 7,500… we’ll be praying it gets no worse.
That said, having looked again at where some companies stand, the truth is that, although I don’t mean to contradict the market experts, my investment advice is the complete opposite of theirs. In fact, I am going to recommend that you build a long-term investment portfolio with stocks you are currently being told to stay well away from, because they are completely bearish and some have broken through key support levels. I don’t mean you should buy them tomorrow, but you should keep a very close eye on them so you can buy as soon as the falls are over and the markets calm down.
Once the market starts to stabilise and rise, these are the stocks where I see the greatest potential for long-term gains:
Banco Sabadell:
Banco Sabadell’s chart over the last five years is completely bearish across all time frames, with what ought to be strong support at €1.20. Looking at the chart more closely, over two years and in weekly candles…
After yesterday’s 12% rise, if the day hadn’t started with Portugal’s crisis and doubts about the Spanish banks, Sabadell would have kept up its comeback. Resistance levels Sabadell could run into are €1.60 and €2.20. I have no idea whether it will be able to break through them in the short term (nobody knows), but in the long term we will see Sabadell above €2.80 and even above €3. In terms of risk and return, it is worth it.
Banco Popular.
Only an idiot would come up with the brilliant idea of a reverse split on such a bearish stock just as it was starting to show signs of recovery. I’ll say it again: only a real, complete idiot (you can tell I’m a Popular shareholder). Banco Popular has lost a key support at €2.63, so that level could now act as resistance. The reverse split has drawn the bears back in, because they now see more room to knock the stock down. I don’t know where Popular’s fall will stop, but I do know that if you want a bank in your investment portfolio, in the long term Popular will be the most profitable, because it has the most room to rise. So the more they knock it down, the better: that way we can buy cheaper and ride the strength of the rises as the short positions are closed later on. As long as they don’t screw the stock up any further.
Abengoa B.
Although I still don’t understand why Abengoa has two listed share classes (Class A and Class B), we’ll focus on Abengoa B, the one they supposedly want to give more weight to, since it is the one that stayed in the IBEX. Its chart is not exactly encouraging.
Abengoa is in free fall with no support to hold it, so it could fall as far as anything. For me, Abengoa is the new Gamesa: although its business sector is not yet as strong as it should be, in the long term Abengoa will probably be one of the leading companies in a sector with a future. At what price should you buy it? If you bought it today, I’m sure you wouldn’t lose money in the long term, but since it is in the middle of a fall, I would wait for the selling to end or for it to get close to the €1 zone, and let’s hope that psychological level stops it.
Others…
Banco Santander: If we want a great blue chip in our portfolio that pays good dividends, that stock is Banco Santander, which right now could be said to be undervalued. If, with a bit of luck, speculators pushed it down to around €4.50, it would be a bargain. Of course, the smart move would have been to buy it last summer, when it fell below €4. Still, you now have a chance to buy it cheaply and diversify your portfolio with a dividend-paying stock.
Ezentis: I don’t have much more to say about Ezentis, except that the announcement of the reverse split has also stalled the rises that could have followed the news of new contracts in the Americas. Manuel García Durán is running the company perfectly, at least from what I can see, and sooner or later that will show in the results. As many of you already know, Ezentis is my biggest bet for 2013-2014.
At the other extreme, I would invest in neither Telefónica nor Repsol. I know they may look like bargains, but let’s remember that Telefónica has €50 billion of debt and faces a new era in which we don’t know who its strongest competitor will be. On top of that, the stock’s behaviour doesn’t inspire any confidence.
Repsol is a stock in which I see very little upside. I would only buy it for the dividends, and I don’t see those as very secure in the long term. If we are talking about a market recovery and a national or global economic recovery, any IBEX stock will have more upside than Repsol.
As you can see, these are not the most popular stocks, nor the recommendations we usually hear from the experts, but this is where I personally am going to fill my basket for the long term as soon as the falls are over.
Let me remind you that this is my own personal opinion, and each of you has to work out whether it is worth taking on these risks or whether you would sleep better with other, less volatile stocks.
Further reading
- Three investment ideas that can get you into trouble
- The only 4 things you need to know about investing
Featured image: CarlosVdeHabsburgo, CC BY-SA 4.0, via Wikimedia Commons.
.jpg){kind=link}