Rémi Le Bailly: Hello everyone. I am very happy to have you back for a new season of “chat” after the summer break. A bullish summer as a whole even if the events of the last few days have seriously reshuffled the cards with, during the Jackson Hole symposium, the very offensive statements in terms of the fight against inflation from central bankers. We will of course have the opportunity to discuss this subject during our hour of discussion.
LAURENT: Hello. In your last weekly, you raise your stock recommendation to 40%, which is historically very low for you, your Cac outlook is clearly on the downside and, unless I’m mistaken, I found 34 buy tips on Cac 40 values. I don’t quite understand your advice because I perceive a contradiction: can you explain it to me? Thanks.
Indeed. A share of 50% corresponds to a balanced allocation at Invest. By reducing the equity item to 40%, we are indeed becoming cautious. This can also be seen in our forecasts for the Cac 40 at the end of December with a probability of 65% for an index below 6,200 points (the current level) at the end of the year.
As we’ve written about several times this summer, we thought the market was overly optimistic amid high inflation and rising rates. He bet on a rosy scenario combining a rise in rates sufficient to break inflation without hindering growth too much. It was a bit of a new version of the “goldilocks” scenario that had prevailed in the markets in the years 2016-2017.
It seems to me that the declarations of Jackson Hole have set the record straight: the rise in rates will continue and will be strong. Central bankers are ready to cause a recession to break inflation.
In this context, we must be cautious and reduce the share of equities.
I come to the second part of your question. The answer is “yes”, we are surely too “buyers” of securities, like the analysis offices of the big banks and brokers. It’s not an excuse but it’s an explanation. It is easier and faster to change your mind on the market as a whole than on individual stocks. Macroeconomics moves faster than microeconomics.
Our stock targets are given for a 12-18 month horizon. This means that our stock advice is also longer-term than in the markets, where advice can be given for a few weeks or a few months. Moreover, when we sell a title, especially on large values of the Cac 40, we receive mail asking us why this reversal on an action that you have often held for years.
In summary, 1- Yes, we are buying too much and there is a contradiction here that we must correct. 2- Prudence in the market can also translate into an increase in liquidity by reducing its exposure on all lines or, and this is what seems to me the most flexible, by acting on hedging products such as turbo puts on index. Even if the market has fallen in recent days, there is still time to buy puts with a fairly high knock-out barrier at 6,700 or 6,800 points.
Pierre: Hello Mr. Le Bailly, in your asset allocation, I see that you recommend 40% equities, including 45% US equities; however, in your international I10 selection, there are only 2 US stocks, Berkshire Hathaway and Walmart; should you bet everything on these 2 actions and if not, which ones do you recommend in addition? Thank you and good day.
Well seen. We believe that the American market is undoubtedly less fragile than the European markets in the current context. We will probably increase the share of American stocks in our Investir 10 international selection.
You can also increase the weight of Wall Street in your portfolio by buying Sicavs or FCPs invested in the American markets or by buying ETFs on the major American indices. It’s another practical and quick way to invest in American securities.
Robi: Hello, can we expect near-stability in the markets because they react to news as if they didn’t know it? While this is not the case.
There may be overall stability over the next few months but, in the short term, we are not counting on stability but on a decline in the market. That’s what I just explained. But you’re right, the markets have been surprisingly resilient lately to an unfavorable economic environment. The explanation is probably to be found in corporate earnings, which significantly exceeded forecasts, in particular due to the good performance of the energy sector.
But I have a feeling that the upward earnings revision phase is coming to an end.
LAURENT: Hello, what are your stock market prospects for 6/12 months and what are the stock purchase levels for the Cac 40 in your opinion? Thanks.
We give you in the newspaper, on page 2, our forecasts for the end of the year, at 4 months. If you look at our chart, the middle point is at 6,100 points. Before that, I think the market should go lower. The chart analysis, according to our partners at Trading Central, is bearish with supports at 6.060, 5.905 and 5.785 points. I think that the 6,000 points should be sunk and that we should come and test the lows of the year hit at the beginning of July at 5,785 points.
I think we have to wait for the markets to stabilize before recovering.
thierry54: Hello Mr Le Bailly, what do you think of the Sanofi share price? Do you see an improvement or a decrease? Thank you for your analysis. Cordially.
There is currently no questioning of the model. The market overreacted. I think the stock is discounted and worth keeping.
DUNE: Hello Mr. Le Bailly. What’s going on with Esker? The value at 360 euros represented 10% of my small portfolio, which fell to 132 euros, what should I do? I did not find any information justifying this fall. Thank you.
The stock has lost more than 60% since the start of the year. Laurent criticized us for advising too many buy tips, Esker is precisely a stock on which we advised partial sales a little less than a year ago, on September 18, 2021. The share then listed 294 euros. We have since repeated this advice several times.
There are several explanations for this decline. First of all, like all expensive values (that is to say, to simplify, with a high PER), Esker was the victim of the rise in interest rates which penalizes this type of company for reasons, which I explained to several times in this chat, the discount rate of future profits, which increases and weighs on the valuation (this rate is in the denominator of the calculation formula).
Then, the company, even if it remains of high quality, disappointed by publishing under 2021 results below expectations, which was all the more heavily sanctioned as the value was expensive. Now, at the current price, I would advise you to hold your line. Most of the drop is done.
Finally, your case allows me to remind you that it is not prudent to let one security represent 10% of your portfolio. When this is the case, you have to reduce your position by a third to get back below 7%. It is a rule of sound management.
Jean-Paul: Hello Rémi. The economic slowdown is taking shape. Also, positioning in sectors that are less sensitive to the economic situation, such as concessions, seems relevant to me. What do you think ? If so, which choice should be favoured, in the long term, among Eiffage, Getlink, Vinci? Wishing you an excellent return. Best regards.
It will not have escaped your notice that Getlink is the tip of the week from the issue that has just been published. It is undoubtedly the one with the safest profile because the other two have more diversified profiles. But I agree with you, concessions are values to play in the current inflationary environment.
Chloe56: What is your analysis of Saint-Gobain, which fell significantly in August? Thanks for your precious advice.
Saint-Gobain is still perceived as a cyclical value by the market. It therefore risks, according to investors, suffering from a possible economic slowdown. In addition, some doubt its ability to pass on cost increases to its selling prices.
The group succeeded in doing so in the first half of the year and its managers were very confident when publishing the half-year results.
In addition, 50% of activity is in the field of renovation, which is less cyclical than construction and which benefits structurally from the energy transition.
It therefore remains a value that we like, but the environment is less good than a year ago.
Eagle Eye: Hello, the context of rising rates is clearly not favorable for growth stocks, but since some have already fallen sharply, wouldn’t it be wise to keep them? How to sort? What proportion of the portfolio should be allocated to them please? In growth stocks, I have Microsoft, Google, Tesla, Nvidia, Capgemini, Teleperformance, Hermès, LVMH, Eurofins Scientific, STMicro in my portfolio. Almost all in capital gains. On the other hand, Trigano, which you have regularly advised to buy, is in steep decline, as well as Rubis.
I just said it about Esker: the rise in rates is not favorable to growth stocks and therefore to the securities you cite. But, in the long term, it is the growth stocks that rise the most. Here we come back to the first question, that of Laurent.
As François Monnier explained in the last issue, we recommend a three-tier distribution. A third of growth stocks, a third of defensive stocks (Air Liquide, Carrefour, Thales, etc.) and a third of discounted stocks (Stellantis, Axa, etc.). Trigano falls into the latter category. Finally, we have been advising, since February, to sell the Rubis share.
Reading your question, I have the impression that these securities are the majority in your portfolio. The time has undoubtedly come to lighten your load.
It’s already 5:20 p.m. It’s time to leave us. I could not answer all the questions. Don’t hesitate to try your luck again. Denis Lantoine, whom you will find next week and in great shape, will be happy to treat them. Have a good week.