elEconomista proposes two portfolios, one with a clear cyclical bias that trades at an average PER of 7 times over the 2022 earnings and the other with the most expensive stocks on the stock market
A year and a half after the market blew up the board, it’s time to start choosing the pieces to start a new game. The pandemic, it is true, exacerbated the spirits of investors who ran to buy cheap once the market had ruined the work of years of the companies. But the key, then and now, is still knowing how to identify which companies are at attractive prices and which ones are trading at multipliers that, although they seem tiny, are justified by their future forecasts.
The most famous value managers face this crossroads every time they invest. Some of them, on occasion, have fallen into what are known as valuation traps (or trap values ), which are firms with such a low PER that they suggest that the market is undervaluing them, although the reality is quite different.
But we must not forget another mistake that investors frequently make and it is none other than discarding those who trade at high multipliers thinking that it is too late to buy. And this is not always the case. The best pawn that illustrates this is Cellnex with a three-figure PER and a 500% revaluation in the market in the last five years.
Once the foundations on which the investment board rests are consolidated again, at elEconomista we propose the creation of two portfolios of Spanish securities that will be reviewed periodically. The first of them is made up of the eight titles that have a PER (ratio that measures the profit of the companies between their price) lowest in the entire Continuous Market.
They are ArcelorMittal , Repsol , Atresmedia , Santander , Sacyr , Mediaset , Unicaja and Acerinox, which have an average PER of 7.1 times over the 2022 profit. It is a cyclical portfolio made up of financial securities and those linked to steel and raw materials, in addition to the two communication media.
On the other hand, there are eight other companies, where appropriate, with the highest PER in the Continuum. They are Cellnex Telecom, Siemens Gamesa , Ferrovial , Inmobiliaria Colonial , Amadeus , Aena , Inditex and Fluidra . The average profit multiplier at which these eight firms are trading for next year is 43.6 times, excluding Cellnex whose PER is 387 times.
In both cases, a minimum of eleven analysis houses have been required to monitor the companies. For this reason, Solaria and Metrovacesa have been left out of the portfolio with the highest PER, having 10 or fewer analysts.
A PER below 8 times
The cheapest company right now based on its profit multiplier is ArcelorMittal. And this is so because in 2021 it will reach a historical profit of more than 9,800 million euros – the highest in the entire Spanish stock market. And, although in 2022 it will fall to 5,400 million, it continues to benefit from the moment of the cycle.
This brings its PER to 4.9 times next year, and it will not be until 2023 when it will return to normalized levels of over 3,000 million euros. The steelmaker continues to take advantage of a recovered demand and a still reduced stock, which has raised the prices of its products and improved its margins. Arcelor is the best recommendation on the Ibex 35 and continues to trade at 2012 highs, close to 30 euros per share.
The portfolio of eight cheap stocks also includes Acerinox, with an expected PER of 7.7 times for next year. 28% has been recorded so far this year ?? the tenth most bullish firm on the Ibex ?? and this is so because, in addition to the cycle that accompanies it, its figures support its growth. The second semester is expected to report an ebitda similar to the first one ?? about 380-400 million euros ?? and at the end of December it will imply its best data since before the Lehman crisis. But there is more cycle in the portfolio.
Despite advancing 20% in the stock market since January, analysts do not expect a drastic increase in Repsol’s profit multiplier. The PER of the oil company will stand at 6.7 times in 2022, something that would be viable as long as the projections that point to profits in that year that exceed 4,000 million euros are met. Likewise, the Spanish company shows a 37% discount compared to the ten largest firms in the European sector, which trades at an average of 10.6 times.
Two other classics of the value philosophy are Atresmedia and Mediaset, which in the eyes of many managers are quality stocks that generate large cash flows but are undervalued due to the advertising crisis in the sector. All in all, both firms can be a good asset to play the economic recovery after the pandemic.
Proof of this is that 30% and 23% respectively are recorded in 2021 and they offer per PER very attractive discounts of more than 50% compared to their respective historical averages. The first is trading at 7.9 times its 2022 profits, and the second at 8.11 times. “Although in the first semester the advertising market for Spanish television was below the levels of 2019, Mediaset indicated in its results a strong advertising trend during the summer months,
Atresmedia offers a very attractive dividend yield, with yields of 10% for 2021 and 11% for 2022
If there is another industry in which you have to take the PER ratio with tweezers, it is that of construction companies. Proof of this is that Sacyr is listed in the cheap securities portfolio and Ferrovial is in the other.
In the case of the firm headed by Manuel Manrique, the modest advance since January, 4%, added to its good growth forecasts, leaves it trading at a multiplier of 7.6 times its profit in 2022, which implies a discount 27.6% compared to comparable companies such as ACS and 38% compared to FCC.
And what about the financial sector? Two banks sneak into the stock selection with a PER of 7.3 for Santander and 7.9 for Unicaja. At the gates is CaixaBank and Mapfre in the 8 times. Banks are still not soaring after the pandemic, despite the fact that they have stopped provisioning in the face of an upturn in non-performing loans, which in the end has not occurred to the expected magnitude.
On his side are the words of the Fed and also the ECB when talking about a normalization of stimuli. New news is expected in September, but, to date, the forecast is for tapering to begin in the US this year and a first rate hike in 2022. For the eurozone, we will have to wait until 23.
A PER greater than 23 times
That the telecommunications tower firm is trading at an exorbitant ratio by its profit multiplier (387.2 times by 2022) is not an impediment for its name to be one of the most repeated in the portfolios of growth managers. Cellnex scores 34% in 2021 and last Monday it again renewed all-time highs at 61.08 euros per share.
Looking at the PER of the teleco when investing is still misleading, since the company has focused in recent years on going to capital increases and making new acquisitions to grow through inorganic means, although increasing the number of customers per location is the other great growth vector for the next few years.
Cellnex is taking advantage of the concentration process that the European sector has undergone in recent years, in which the Catalan has taken over the biggest piece of the pie and competes head-to-head with American Tower.
As with Cellnex, to look at Siemens Gamesa and Ferrovial you have to look at the numbers for 2022, since for this year the FactSet consensus does not foresee a positive net profit and, therefore, a profit multiplier. The wind turbine manufacturer is trading at 85 times its earnings for next year and will continue to normalize this ratio for 2023, when it falls to 32 times. In the case of Ferrovial, the PER will go from 84 times in 2022 to 47 in 2023.
A Socimi sneaks into the selection of more expensive securities. It’s Colonial, which is still trading 27% below pre-Covid levels vis-à-vis the sector, 3% in losses thanks to the boost from German residential real estate (with Vonovia and Deutsche Wohnen in merger talks).
It has the most exclusive offices in Paris, Madrid and Barcelona and managed to increase its NAV per share (net asset value) timidly in the semester, to 11.36 euros. It is trading 20% lower. Although its exclusive exposure to offices, without logistics or residential, the two sectors that are pulling, generates some doubt.
Tourism, with Aena and Amadeus as representatives, also appears in the portfolio with a PER of 26.1 and 30.9 times, respectively. For the airport manager, the third quarter of the year (from July to September) is expected to be the first without losses since the pandemic began.
It could return already this year to profit, although the consensus clearly expects it for 2022, with 800 million euros expected. Amadeus, for its part, has always traded at very demanding levels, taking into account the oligopolistic nature of its business (together with Saber, from the US) and its technological profile. It could also earn money this year, but it is expected for 2022, with 700 million euros.
Tourism, with Aena and Amadeus as representatives, also appears in the portfolio with a PER of 26.1 and 30.9 times
Inditex, with a PER of 23.5 times, is far from what it used to be. Today it presents a 5% discount compared to its peers and it is expected that in 2022 it will exceed the pre-Covid profit with almost 4,000 million euros.
In last place is Fluidra, which is trading at a PER 2022 of 23.3 times, after analysts have made an adjustment to its profit estimates for 2022, increasing it by more than 60% since January with the rise recorded in the price of its shares in the market in 2021, more than 70%.
From Citi’s point of view, business line growth remains strong. “Fluidra recorded a strong residential swimming pool season in the first half, with a strong outlook for the rest of the year,” they explain. This, combined with its solid history of acquisitions, leads them to expect that the company “will increase its sales by 40% per year and that it will achieve margins of 25.5% for the entire year,” the entity’s analysts point out.