Swimming against the current in the Ibex 35, madness or success?

Conditions are brewing in Spain that may benefit investors

4 min read

Parks around the world have been in free fall for several weeks due to the chaos that is causing both the spread of the coronavirus and its disorderly management by the political and health authorities. Bears smell blood and show teeth without mercy. The weaker hands liquidate their positions and there is a cascade effect on stock sales. But are we really facing a stock market scenario with no room for cautious optimism, at least in the medium and long term? That is what we are going to talk about today, about some Ibex 35 companies that have entered purchase territory, presenting lower PERs than ever.

The Ibex 35 currently offers unique opportunities if we invest in PER

Swimming against the current in the Ibex 35, madness or success?
Swimming against the current in the Ibex 35, madness or success?

If you look at the Ibex 35 chart , there are reasons to try to swim against the current in the national benchmark, especially if our investment style is based on buying stocks with low PER. It should be noted that, today, some heavyweights of the Spanish business fabric are trading with a PER at record lows. Below PER 10, a stock is considered to be undervalued . Well, with PER less than 8 are Ibex 35 bank giants such as Santander or BBVA. With a PER of less than 10, Telefónica stands out, one of the most profitable blue chips in Spanish stock history. Similar is the situation of other giants of the Ibex 35, such as Repsol or IAG. Historically, these companies have been in addition to the most lucrative of the Ibex 35, so going against the trend in this turbulent scenario could be a good opportunity to build a solid portfolio for the future (in the short term it is impossible to predict scenarios with a minimum degree reliability).

PER, one of the most reliable indicators to buy shares

The PER, also known as the price-benefit ratio, is one of the best instruments when evaluating the suitability or not of acquiring shares in a company. This is a geometric ratio used to try to discern the real value of a company and is calculated by dividing the listed price by the profit per share. The number resulting from this simple operation reflects how many times the net annual benefit is paid. Thus, in general terms, the higher the PER, the more expensive a company is and vice versa. However, purchasing decisions should not be made based exclusively on this indicator, but it is a good tool when making our assessments.

In summary, we could be facing the umpteenth time that the maxim of buying when there is blood on the streets becomes a lucrative reality. After the stock market hurricane that the Spanish stock market has suffered, irresistible buying opportunities are emerging for investors in the medium and long term, such as IAG, Repsol, Meli√°, Acerinox and Santander. Now, volatility will be king in the short term, so going against the current downtrend doesn't seem like the best idea for more conservative investors.

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