CAC 40, the flagship index of the Paris Stock Exchange, has lost about 12% since the beginning of the year. In the United States, the S&P 500, which includes the 500 largest US companies, tied the decline for seven consecutive weeks. There have always been more or less strong fluctuations in the financial markets. And underwent periods of strong correction after years of expansion. Today, tightening monetary policy, the war in Ukraine, medical restrictions in China and the risk of recession in several European countries are causing strong stock market fluctuations.
It is time to remember that investing in stocks is very risky in the short term, but very often profitable in the long run, with an investment horizon of 10 years or more. It remains to invest in good companies and promising industries. Among them are renewable energy sources, which are needed in the fight against global warming. “This sector, like everything related to the energy transition, risks being unprofitable at the start, as it will require significant investment,” warns Alexander Baradez, head of market analysis at IG.
Hence the importance of long-term planning. Solar, wind or even hydrogen should benefit from large-scale investments, such as € 30 billion, on the environment and the energy transition provided for in the government’s recovery plan, from a total budget of € 100 billion. The war in Ukraine has exacerbated the need to diversify our energy sources.
Renewable energy sources, rare metals and semiconductor manufacturers
In France, registered companies in the sector include, for example, Lhyfe, a recently listed stock exchange, and McPhy, which specializes in hydrogen, Neoen in solar and wind power plants, or Albioma, an expert in solar photovoltaics and biomass. “Even Total Energies is investing heavily in renewable energy,” said Alexander Barades. On May 25, the oil giant announced that it had acquired 50% of Clearway, “America’s 5th Renewable Energy Player.”
The financial analyst also suggests giving preference to “all metals needed for energy and environmental transition”, such as those used in electric car batteries (nickel, lithium, cobalt, etc.). According to many experts, goods are experiencing a “supercycle”, their value has jumped with the recovery of the economy after the health crisis. But their prices must remain high given the high demand.
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Frederic Rollin, investment strategy adviser to Pictet AM’s fund manager, also spoke about “semiconductor manufacturers, components needed for electric vehicles”, such as the American company Onsemi, listed on Nasdaq, or the French groups Soitec and the French-Italian STMicroelectronics.
In connection with the environmental transition, he refers to “companies that specialize in thermal insulation of buildings”, such as TopBuild, another US company on the New York Stock Exchange, which installs and distributes insulation materials for construction.
Another sector that is expected to develop in the coming years is cybersecurity. The increase in computer attacks since the beginning of the war in Ukraine and the Russian invasion only confirms this trend. The Australian government, for example, announced in late March that it intended to allocate more than $ 7 billion to cybersecurity over the next 10 years.
Companies specializing in this sector include, for example, Wallix software publisher in France or Palo Alto Networks, California.
Telecommunications, utilities and health
Other sectors are resisting prices well, and the companies that are part of them must at least maintain their value over time or even raise the price in the stock market. This applies to so-called “protective” stocks, which correspond to companies that are not very sensitive to economic cycles and crises. These include “utilities” or utilities that bring together groups involved in the production and distribution of water, gas and electricity, such as Engie, Veolia or Spanish Iberdrola, Danish Orsted and Italian Enel.
Telecommunications companies are also doing well in the current instability. Orange’s share price, for example, has risen 25% since the beginning of the year. After ten years of decline in 2021, the revenue of telecom operators in the retail market has increased, in particular, due to mobile communications, Arsep said in a press release. In addition, groups such as Orange regularly pay generous dividends, which can increase the return on your investment.
Finally, the healthcare sector and large pharmaceutical companies such as Sanofi in France or Pfizer in the United States must continue to perform well in the stock market in the long run. Following Covid-19, monkeypox is a reminder of the high risk of new epidemics in the future. In addition, France and other European countries have shown a desire to be less dependent on Asia for certain drugs and medical equipment.
“Therefore, utilities, telecommunications and healthcare are three interesting sectors to keep in the portfolio, which are not characterized by wild bursts in the stock market, but whose companies have proven themselves well,” – sums up Alexander Barades.
Luxurious and large American technology promotions
Moreover, if the end of the central bank’s adaptive policies now imposes penalties on large US technology companies, it may be wise to have some of them in their portfolio. “You have to invest sparingly,” says Frederick Rollin, who still sees them as emerging stocks that can do well in the years to come.
In addition, falling prices and, in particular, the technology-oriented Nasdaq market are creating opportunities. Shares have already fallen sharply – as evidenced by the fall of Apple shares by 20% since the beginning of the year – and they can be bought at a good price. But autumn may not be over yet …
Finally, luxury stocks must also recover and continue to pay dividends to their shareholders. “If they are affected by the difficulties of the Chinese economy in the short term, they have the opportunity to raise prices if necessary and maintain high margins,” explains Frederick Rollin. In addition, “they have developed an interesting driver of growth during the online sales pandemic.”
Although stock markets have been in the red since the beginning of the year, and 2022 promises to be difficult, there are still opportunities to take advantage of. With the ability to create a strong portfolio for the future.