What stock market trend do you foresee in 2022?
We’re pretty positive. The Stoxx 600 index could increase by around 15% compared to its level at the end of 2021. Economic growth should remain very strong, especially in the euro zone where we estimate that it will stand at 4.5%, rather above the consensus at 4.2%. We are therefore quite comfortable with a scenario of an increase of 7 to 8% in turnover. As for 2022 earnings per shares, they are expected to increase by 8% but that seems overly cautious to us and we are expecting a double-digit rate. The current valuation, based on 15.8 times the consensus, seems relatively attractive to us. The message is reassuring on Omicron, the lethality much lower than that of Delta. This good health news means that growth will not be hampered. This is why the risk premium falls, which allows the markets to advance even as long rates rise.
There are two caveats: inflation and central bank policy. But, in my opinion, in Europe, we are far from a hike in key rates. As for inflation, it means growth, and right now companies are all telling us that they manage to push through price increases. If inflation did not slow down in the second half of the year, that would be a cause for concern. But the biggest cloud comes from China. The Chinese vaccine appears relatively ineffective against Omicron and, if the zero Covid policy continues, there is a risk of plant closures and further disruption to supply chains. Added to this are the difficulties of the real estate sector, which represents almost 30% of Chinese GDP.
What do you think of the small and mid-cap sector?
For the fourth year in a row, the performance of the small and midcaps indices was lower than that of the Cac 40 in 2021. But this comparison is a bit skewed because half of the performance of the Cac 40 came from the luxury industry ( Hermès, Kering, L’Oréal, LVMH). However, there is no luxury player among small and medium-sized companies. In addition, the Cac 40 was supported by the banks. This year, mid-caps should no longer underperform. We are indeed cautious about luxury goods, because the rise in rates is not favorable to the valuation of growth stocks. Small and medium stocks have historically suffered from a discount, but this is hardly the case today: they are paid 16 times the estimated 2022 profits against 15.8 times for large. The latter are favored by the development of passive management (ETF), which replicates the indices.
What are your favorite values?
We are very positive about the automotive sector, which will benefit from the acceleration of electrification. It’s a bit early to play equipment manufacturers. We prefer manufacturers, like Stellantis, or tire manufacturers like Michelin. We are also interested in technology, with a certain caution given the effect of rising rates on growth stocks. In the semiconductor industry, we like Infineon and STMicroelectronics, the most exposed to the automotive sector.
In addition, the banks still have a little potential. Our favorites are BNP Paribas and Crédit Agricole, as well as Rothschild & Co, for its M&A and private banking activity. I can also cite Worldline in the payments sector. It’s a bit risky bet, but the EBITDA should grow by 10% per year and the payment terminals business will be sold for 1.5 to 2 billion euros. It is not without value. As proof, Ayden will create its own terminals.
We are also positive about Technip Energies, a major player in the LNG market, now that TechnipFMC has sold its shares. Vallourec should benefit from the recovery in shale gas in the United States. There remains uncertainty about the resumption of investment by oil companies, but it seems likely given the price per barrel.
We are also interested in Elis, 85% of whose activity exceeds the level of 2019 and which will benefit from the recovery in the hotel and catering industry. In telecoms, we went back to purchasing from Orange, whose operating cash flow will rebound this year for the first time since 2010. A good part of the investment in the fiber plan has gone through and savings plans are being made. predictable. Sectors could be upgraded, such as cyber defense, relay towers and activity in Africa. I will also cite Clasquin, which will benefit from the rise in freight prices. Our other favorites include M6, Eiffage, Spie, Chargeurs, Assystem, Groupe Gorgé, Wallix, Jacquet Metal and Ekinops.