The CAC 40, the flagship index of the Paris Stock Exchange, has lost about 12% since the start of the year. In the US, the S&P 500 index, which includes the 500 largest US companies, has been declining for seven consecutive weeks. Financial markets have always experienced more or less strong fluctuations. And has experienced periods of strong correction after many years of expansion. Today, the tightening of monetary policy, the war in Ukraine, quarantine measures in China and the risk of a recession in a number of European countries are causing strong fluctuations in stock markets.
It’s time to remember that investing in stocks is very risky in the short term, but very often profitable in the long term, over an investment horizon of 10 years or more. It remains to invest your money in good companies and promising industries. Among them are renewable energy sources, which are needed in the fight against global warming. “This sector and everything related to the energy transition runs the risk of being unprofitable initially, as it will require significant investment,” warns Alexander Barades, head of market analysis at brokerage IG.
Hence the importance of planning for the long term. Solar, wind or even hydrogen power should benefit from big investments such as the 30 billion euros earmarked for ecology and the energy transition envisaged by the government’s recovery plan, out of a total budget of 100 billion. The war in Ukraine has further reinforced the need to diversify our energy sources.
Producers of renewable energy, rare metals and semiconductors
In France, listed companies in the sector include, for example, Lhyfe, recently listed on the stock exchange, and McPhy, specializing in hydrogen, Neoen in solar and wind farms, or Albioma, an expert in solar photovoltaics and biomass. “Even Total Energies is investing heavily in renewable energy,” stresses Alexandre Barades. On May 25, the oil giant announced the acquisition of 50% of Clearway, “the fifth US player in renewable energy.”
The financial analyst also suggests giving preference to “all metals needed for the energy and environmental transition”, such as those used in electric vehicle batteries (nickel, lithium, cobalt, etc.). According to many experts, commodities are going through a “supercycle” as their prices have surged as the economy reopened after the health crisis. But their prices should remain high given the high demand.
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Frédéric Rollin, investment strategy adviser to fund manager Pictet AM, also speaks of “semiconductor manufacturers, components needed for electric vehicles” such as the Nasdaq-listed US company Onsemi, or French groups Soitec and Franco-Italian STMicroelectronics.
Also in connection with the green transition, he cites “building insulation companies” like TopBuild, another US company on the New York Stock Exchange that installs and distributes building insulation.
Another sector that is expected to grow in the coming years is cybersecurity. The multiplication of computer attacks since the beginning of the war in Ukraine and the Russian invasion only confirms this trend. The Australian government, for example, announced at the end of March that it intended to allocate more than $7 billion to cybersecurity over the next 10 years.
Companies specializing in this sector include software publisher Wallix in France or Palo Alto Networks in California.
Telecommunications, housing and communal services and healthcare
Other sectors weather price drops well, and the companies that make up them should at least maintain their value over time, or even rise in the stock market. This is the case for so-called “defensive” stocks, corresponding to companies that are not very sensitive to economic cycles and crises. Among them are “public utilities” or public services that bring together groups related to the production and distribution of water, gas and electricity, such as Engie, Veolia or the Spanish Iberdrola, the Danish Orsted and the Italian Enel.
Telecommunications companies are also coping well with the current turmoil. Orange’s share price, for example, is up 25% since the start of the year. After a decade-long decline, the revenues of telecom operators in the retail market increased in 2021, in particular, due to mobile communications, Arsep said in a press release. Plus, groups like Orange regularly pay generous dividends, which can improve your return on investment.
Finally, the healthcare sector and major pharmaceutical companies such as Sanofi in France or Pfizer in the US should continue to perform well in the stock market in the long term. After Covid-19, monkeypox is a reminder that there is a high risk of new epidemics in the future. In addition, France and other European states have shown their desire to be less dependent on Asia for certain medicines and medical equipment.
“Utilities, telecoms and healthcare are thus three interesting sectors for the portfolio, which are not characterized by sharp swings in the stock market, but whose companies have performed well,” sums up Alexander Barades.
Luxurious and big US tech stocks
Moreover, if the end of the central bank’s accommodative policy is hurting big US technology companies now, it might make sense to include some of them in the portfolio. “You have to invest with caution,” says Frédéric Rollin, who still sees them as growth stocks with the potential to perform well going forward.
In addition, falling prices, and in particular the Nasdaq market, which specializes in technology, creates opportunities. The stock has already fallen sharply – as evidenced by a 20% drop in Apple shares 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 should similarly 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 Frédéric Rollin. In addition, “they have developed an interesting growth driver during the pandemic with online sales.”
While stock markets have been in the red since the start of the year, and 2022 is shaping up to be a tough year, there are still opportunities to take advantage of. With the ability to create a solid portfolio for the future.