The European Central Bank (ECB) raised interest rates by 0.25% last Thursday, up to 3.75%. He left the door open to new promotions, but did not clarify what the next steps will be.
The market discounts that there will be a pause after the summer. If that were the case, after seven consecutive increases in the official price of money from the zero level at which it stood in July 2022, there would be time for two more. Analysts believe that the stop could last for months and that the next move will be lower. But really everything is up in the air.
Both the ECB and the US Federal Reserve (Fed) decided last year to put an end to the famous forward guidance (indications on the future orientation of their monetary policy, based on their evaluation of the prospects for price stability) to start acting in depending on the economic data of each month. Uncertainty in this field is very high, due to the confluence of inflationary tensions that are very difficult to subdue, the contradictory signals about the intensity of the landing of the economy and geopolitical tensions. Hence, no scenario can be ruled out, even if the rates resume the upward path after September.
One of the formulas to overcome this open panorama on the stock market is to target the companies most immune to interest rate fluctuations, whether of one sign or another. There are none that are totally impact-free because, from a macroeconomic point of view, they are all affected to a greater or lesser degree if interest rates rise. “At higher rates, consumption cools off” and affects the sales of companies in a generic way, explains Toni Cárdenas, manager of Caja Ingenieros.
But it is possible to speak of some companies that are further removed from the rate effect if they are observed exclusively from a micro perspective, that is, taking into account their balance sheet structure or their financing scheme. They are those that have positive net cash or very little debt and that can also be considered solid companies.
Inditex is one of the most repeated options by analysts. It is backed by its net cash, which is around 10,000 million euros, and the strength of its business model. This is reflected in the superiority of sales growth and margins compared to competitors such as H
The shares of the textile chain are trading in a record zone. The consensus of Bloomberg analysts sees an additional journey of 2.4%. Santander, the most optimistic firm, gives it wings up to 37.9 euros.
Amadeus is also in a position to avoid the consequences of interest rate swings, in Cárdenas’ opinion. It ended 2022 with a box of 1,435 million euros, just over 5% of its market capitalization. Its business figures are on a line of positive recovery that will lead the company to return to pre-pandemic levels of results at the end of 2023 or the beginning of 2024, according to expert estimates. The upside potential of its titles is around 4.5%, according to the consensus target price of Bloomberg analysts.
Basic consumer companies, such as food and health, tend to remain firm in the face of movements in the official price of money, says Jorge Lage, an analyst at CM Capital Markets. Among the investment possibilities in this profile on the Spanish stock market, Viscofan stands out, which trades with a debt/ebitda ratio (gross operating profit) close to zero. The meat casing maker is supported by the countercyclical demand nature of its business, its leadership position within an oligopoly, and some pricing power. “The increases in capacity in the different businesses could allow the company to position itself to capture greater growth,” says Alfonso Batalla, an analyst at Renta 4. However, the firms are cautious about the prospects on the stock market due to a lack of clear catalysts.
There may be opportunities in some utilities (public service companies), even though they are indebted companies, “if in addition to being similar to bonds, they earn money,” says Lage. Iberdrola, for example, has done very well in periods of uncertainty in the market, this expert points out. The electricity company is meeting the objectives of the 2025 Strategic Plan (grow more than 8% in ebitda and attributable net profit) ahead of schedule, according to Bankinter.
For Guillermo Santos, a partner at iCapital, Iberdrola’s “immunity” to the economic impact of changes in interest rates is due to the fact that the use of its services “is necessary.” This same argument applies to other public service companies, such as Telefónica, Naturgy and Redeia. “In addition, they have a higher dividend yield than bonds in almost any scenario,” he adds. Among the European listed companies with this profile, Santos favors the Italian Enel and Eni.
The portfolio of securities immune to interest rates can be diversified by focusing on companies on the European stock markets. This is very useful for hunting opportunities in the food sector, which is underrepresented in the Spanish stock market. Lage would lean towards large groups such as the Dutch Ahold Delhaize, which is up more than 16% so far in 2023 and may rise another 4%, according to the Bloomberg consensus assessment. Cárdenas would look at the French Danone, another clear winner in the year on the Stock Market, with an advance of almost 23%.
Expanding borders, it is also possible to access large pharmaceutical companies “which in Europe are represented by companies with high capitalization and good dividends such as Sanofi and even, more diversified in its activity, Bayer,” argues Santos.
The luxury sector would be another of the clearest bets, according to Darío García, an analyst at XTB. Of course, it must be taken into account that they are listed with very demanding valuations. LVHM and Hermès are in the area at all-time highs, but a little more margin can still be found in other companies in the sector such as Kering, Lage remarks. “Looking for the cheapest is a way to take advantage of a sector that has momentum and can continue pulling,” he says. Very close to this sector, Cárdenas pays attention to L’Oréal. Like most companies unaffected by the (now bullish) rate cycle, it is trading at demanding multiples, reflecting the high interest in these stocks among investors. Bankinter analysts believe that the high prices paid for the shares of the French cosmetics group are justified by its leadership position, diversification by product brands and businesses, and its potential for structural growth. They recently raised their price target on the stock from €415 to €435, but downgraded from buy to neutral given the modest upside potential.
