Editor’s note: This article was first published in December 2012 as an outlook for 2013; its stock picks, price levels and targets, the US fiscal cliff, the FROB’s entry into Bankia and the expected end of the short-selling ban reflect that time. Bankia later merged into CaixaBank in 2021. Gowex, presented here as a promising stock, collapsed in July 2014 after its chairman admitted that the company’s accounts had been falsified; it then filed for bankruptcy. This article is kept as a historical record and is not investment advice.
2012 is leaving us with dismal economic data and rising stock markets. 2013, at least at the outset, arrives with serious economic doubts: on one side we have the United States and its fiscal cliff, Europe with its sovereign debt crisis, the Middle East posing risks and the emerging economies slowing down. Many analysts say we are underestimating the problems we will face in 2013. Even so, the indicators are showing positive signs of investor confidence.
Once we know the situation we are facing, it is a matter of weighing the risks according to our investor profile. I wouldn’t advise a conservative investor to take positions in equities during January, at least not in the shares of the main indices, even though I’m aware that stock markets could keep climbing for no good reason. Of course, it is a matter of putting together conservative strategies, always with an eye on the long term.
The strongest stocks on the IBEX 35 and the Mercado Continuo
If we look at the stocks that rose while the whole index was falling apart, with some even doubling their market value, we have Inditex, Grifols, Día and Ferrovial from the IBEX, Viscofán and CAF from the Mercado Continuo (the Spanish stock exchanges’ electronic market), and Gowex from the Mercado Alternativo Bursátil (MAB, Spain’s alternative market for smaller companies), with a surprising rise of more than 150%.
I would be careful with Inditex and Grifols, because in our view the risk of buying in at these levels would no longer be worth the rise we could expect from them. Día, on the other hand, could still have room to run in 2013 thanks to its business model and expansion, and if we add the dividends, that could give us an attractive return.
With Ferrovial and Viscofán it is a matter of following how they perform, although in the case of Viscofán, statistically, after the rises seen when it becomes known that a company is going to join a major index, once it is in, it usually suffers corrections within a few months (this is no exact science, just statistics). Gowex, on the other hand, could keep dazzling, since for now nothing suggests that this company will slow down in the short to medium term. As for CAF, so far it has shown that the economic cycle doesn’t affect it, and it keeps receiving international orders. Some analysts predict that this stock could rise by more than 50%, giving it a target price of as much as €600.
Strategies in the Mercado Continuo
If we pick some of the Mercado Continuo companies we have already mentioned in other articles, always buying them near support levels and choosing companies with rising earnings, it doesn’t matter what the stock markets do. If the economy doesn’t improve, many of these companies have already been punished too much, and if the data start turning positive, these small caps would begin to gain value. We should choose solid companies that have been beaten down and, when the time for an economic recovery comes, invest in the most cyclical ones.
Be careful with real estate stocks unless your only intention is to speculate. In 2013 there will be data from the United States showing that house prices keep rising there, but that doesn’t mean Spain is going to live through the construction boom again. That won’t happen in our country for years.
The US market
Some say that US stock markets may have hit a temporary ceiling and could start a sharp correction. I would keep an eye on the stocks that get hit hard during that correction, because in the end an agreement will be reached on the fiscal cliff and everything will carry on as before. Two stocks to watch because of their steep falls are Microsoft, a company that will continue to be punished for the poor sales of its latest operating system, and Hewlett-Packard Company, which has fallen almost 50% over the past year. Watch out for possible rises in these giants.
We can also speculate
2013 is going to be a year of real short-term investment opportunities. Let’s talk about Bankia, a stock we all take for granted is worth nothing, awaiting a major dilution of its capital when the FROB (Spain’s bank restructuring fund) comes in as a shareholder. Suppose that over the course of 2013 we get the chance to buy Bankia around €0.50, or even at €0.20, where some say it could fall. At that price I would buy without hesitation; after all, who says Bankia is going to close? It could happen, of course it could, but we could also see it above €2 one day. Clearly, it would be a purely speculative investment.
Update: We have just learned that Bankia has been given a negative value. The bank will undergo a sharp capital reduction followed by a capital increase. In the end it won’t be valued at zero, but it will be given a residual price, and by residual price we can understand a value of €0.01, like its twin Banco de Valencia. So as for Bankia… don’t even look at it.
And at some point we can be ready to trade on the short side (bearish positions), because I somehow have the feeling that this whole cheerful rally will be ideal for sending indebted stocks tumbling, since they are the first to fall when economic doubts arise. Remember that the ban on short positions will probably end in late January, so depending on what the data show, we may make more money speculating on falls, especially in bank and construction stocks.
And of course, anyone who doesn’t have the stomach for this financial turbulence and uncertainty will always have fixed income (fixed-term deposits and government bonds).
Apart from that, either you are a very long-term investor or you are an investor willing to actively monitor your portfolio. If you don’t meet one of these requirements, I wouldn’t advise you to take positions in equities at the start of 2013, although I would advise you to take a look at the Mercado Continuo.
Featured image: Philip Mallis from Melbourne, CC BY-SA 4.0, via Wikimedia Commons.
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