In this article, we discuss the 10 European stocks billionaire Ray Dalio is shorting.
Billionaire Ray Dalio’s Bridgewater Associates has gone short on European stocks by placing a $10.5 billion bet against them, according to a report by Bloomberg. The largest hedge fund in the world has doubled its short position on the European stocks within a short period of one week. This is the biggest bet against the European stocks taken by the Westport, Connecticut-based hedge fund in the last two years. Bridgewater Associates has disclosed short positions in 28 companies. All these companies are a member of the Euro Stoxx 50 Index.
The hedge fund has initiated the short positions following reports that the economic growth in the Eurozone is slowing down due to rising prices. Furthermore, the German government has warned that the increase in gas prices could cause a collapse in the energy markets. This trigger could be similar to how the financial crisis of 2008 was prompted by the bankruptcy of Lehmann Brothers.
Short selling is a trading strategy that traders employ to benefit from the decline in stock prices. The move by Bridgewater Associates, where Dalio also serves as one of the five co-Chief Investment Officers (CIO), has come at a time when interest rates are rising to counter the impact of increasing inflation and fears related to the recession are growing with every passing day. However, it could not be determined whether Bridgewater Associates has taken the short positions to hedge its overall portfolio or whether these bets are made independently to generate pure profits for the hedge fund with an asset under management (AUM) of roughly $150 billion.
Since the start of the conflict between Russia and Ukraine earlier this year, the price of energy and staples has risen significantly. The increasing energy and staples prices are being transferred to the customers, which is limiting their buying power.
Greg Jensen, a co-CIO at Bridgewater Associates, stated in an interview with Bloomberg TV that the recent correction in the market does not make up for the rally experienced in the last decade, and this provides more room for correction in the US and the European markets. However, he refrained from commenting on the firm’s short bet on the European market.
Before the current short bet of $10.5 billion, Bridgewater Associates had taken a short bet of $14 billion against European equities in 2020 and a bigger position of $22 billion in 2018. These numbers could be even higher as the hedge funds are only mandated to disclose a holding of 0.5% or more of the total company.
However, Ray Dalio is bullish on several notable US companies, including Pfizer Inc. (NYSE:PFE), Alibaba Group Holding Limited (NYSE:BABA), and The Procter & Gamble Company (NYSE:PG).
Let’s take a look at the 10 European stocks that billionaire Ray Dalio is shorting.
Billionaire Ray Dalio is Shorting These 10 European Stocks
10. TotalEnergies SE (NYSE:TTE)
TotalEnergies SE (NYSE:TTE) is a French integrated energy company that is facing challenges on all fronts due to inflation. The French oil refineries of TotalEnergies SE went on a 24-hour strike as the workforce demanded higher wages to counter the impact of inflation.
The earnings of the energy major have risen due to rising crude oil and natural gas prices. However, the labor union intends to stop fuel deliveries by pipeline, train, and truck. TotalEnergies SE has guaranteed that its network of gasoline stations will not run out of fuel despite this disruption. The strike has impacted the 119,000 Feyzin refinery, 240,000 barrels per day (BPD) Gonfreville refinery, and La Mede bio-refinery. The French government also intends to put more pressure on TotalEnergies SE to provide customers with fuel at economical prices by offering them new rebates or extending the current ones.
TotalEnergies SE was held by 20 hedge funds at the end of Q1 2022.
9. Siemens Aktiengesellschaft (OTC:SIEGY)
Siemens Aktiengesellschaft (OTC:SIEGY) is a German conglomerate focused on healthcare, industry, infrastructure, and transport. The company has around 303,000 employees globally.
Siemens Aktiengesellschaft has significant exposure to economic cycles, and the increasing likelihood of a recession makes it a short bet for retail investors and hedge funds. Furthermore, the company is heavily exposed to supply chain disruptions and COVID-19-related lockdowns. In the energy, power, and transportation businesses, Siemens Aktiengesellschaft faces heavy competition. The increasing competition is expected to harm the company’s bottom-line margins and EPS.
Siemens Aktiengesellschaft has also come under pressure after incurring a €600 million impairment charge during Q2 FY22 for exiting Russia. Since the start of the year, the ADRs of Siemens Aktiengesellschaft have lost 36.8% of their value.
8. SAP SE (NYSE:SAP)
SAP SE (NYSE:SAP) is a German software company involved in the development and execution of enterprise software solutions for managing business operations and customer relations.
On June 20, Charles Brennan at Jefferies lowered the price target on SAP SE from €120 ($127.32) to €110 ($116.71) and maintained a Hold rating on the stock. The analyst thinks that the management has prepared investors for soft Q2 2022 results, and the institutional investors are also prepared for such an outcome. Since the start of the year, SAP SE stock has lost 30% of its value as it has been impacted by concerns related to rising inflation along with a weak economic outlook. Furthermore, SAP SE has also been affected by the start of the conflict between Russia and Ukraine earlier this year. The company revealed that it had lost $318.30 million in revenue due to businesses closing down in Russia.
Polen Capital discussed its stance on SAP SE in its Q1 2022 investor letter. Here’s what the firm said:
“In our opinion, SAP is demonstrating that their cloud transition and RISE with SAP strategy are working. We added to our position upon evidence that CEO Christian Klein’s strategy is bearing fruit, and the stock trading down to an attractive valuation during the quarter. The strategy and sell-off are connected, and we believe it provided an opportunity for long- term shareholders. The company recently reported weak 2022 margin and FCF guidance. This was expected if cloud growth accelerated – which it has. Current cloud backlog has accelerated to a mid-20% growth rate, and the S/4 HANA Cloud Backlog and Cloud Sales have accelerated as well. Cloud, which tends to be a very sticky business with high recurring revenue, is now a >$10bn business and represents roughly 40% of sales.
Our research shows this should only increase over the next five years. If management continues to successfully execute its strategy, the transition should create a mechanical lift to margins and greater levels of FCF. We believe SAP is a durable business led by capable management that is poised to deliver high-quality mid-teens earnings growth over the next five years.”
SAP SE was held by 19 hedge funds at the end of Q1 2022.
7. Sanofi (NASDAQ:SNY)
Sanofi (NASDAQ:SNY) is a French pharmaceutical giant that is focused on consumer healthcare, pharmaceuticals, and vaccines.
Unlike other pharmaceutical giants, the company has a heavy reliance on a single drug, Dupixent. The drug treats moderate-to-severe eczema and contributes 14% to the top line of Sanofi. AbbVie Inc. (NYSE:ABBV) and Pfizer, Inc. have come up with similar products, and this is expected to negatively impact the market dominance of Sanofi.
Furthermore, Sanofi was unable to come up with a vaccine against COVID-19, and the company is still lacking behind in the mRNA technology. This has left Sanofi behind its competitors in terms of financial and share price performance since the start of the pandemic. The success of Dupixent has given the company some respite, but as the dominance of the drug fades away, Sanofi is likely to see tough times going forward.
Sanofi was mentioned in the Q3 2021 investor letter of Dodge & Cox Stock Fund. Here’s what the firm said about the company:
“Sanofi (3.5% position) is a diversified, global pharmaceuticals company with leading positions in vaccines, consumer health products, rare diseases, and emerging markets. Despite a favorable business mix, Sanofi has underperformed its peers in new product development, commercial execution, and profit growth. A new management team, recruited in 2018-19, has made progress turning the company around. Its drug pipeline is improving, targets for higher margins are being met, and earnings per share are growing. Sanofi also pays a 4% dividend yield, maintains a strong balance sheet, and has relatively low exposure to potential pressures from U.S. drug pricing.”
Sanofi was held by 19 hedge funds as of Q1 2022. On the other hand, Pfizer Inc., Alibaba Group Holding Limited, and The Procter & Gamble Company, in which Dalio has major stakes, are more popular among elite hedge funds.
6. Bayer Aktiengesellschaft (OTC:BAYRY)
Bayer Aktiengesellschaft (OTC:BAYRY) is a German pharmaceutical and life sciences company.
The company’s Roundup weed killer is in the news as thousands of lawsuits have been filed against it, stating that the weed killer causes cancer. The sentiments were shared by the US Supreme Court as it did not overturn an $87 million award against Bayer Aktiengesellschaft imposed by a lower court in California. Alberta and Alva Pilliod were diagnosed with cancer after spraying Roundup weed killer on their fields for three decades. The jury had awarded $2 billion to the plaintiffs, but the judge reduced it to $87 million. Out of the seven trials filed against Roundup, Bayer Aktiengesellschaft has lost three trials and has been charged with millions of dollars in damages.
Unlike Bayer, Dalio is bullish on Pfizer Inc., Alibaba Group Holding Limited, and The Procter & Gamble Company as of Q1 2022.
5. BASF SE (OTC:BASFY)
BASF SE (OTC:BASFY) is a German chemical company and the biggest chemical producer globally.
BASF SE has been heavily impacted by the conflict between Russia and Ukraine as the natural gas prices have increased significantly across Europe. Furthermore, there are concerns related to the possibility of the natural gas supply being restricted by Russia. The rise in natural gas prices will significantly reduce the profit margins of BASF SE. The company claimed that it had to pay an extra $1 billion to buy natural gas for its European plants compared to a year earlier. As a result, BASF SE observed a 29% decline in net income despite a 19% increase in revenue during Q1 2022.
Tweedy Browne Company shared its stance on BASF SE in its Q4 2021 investor letter. Here’s what the firm said:
“With respect to ESG issues that arose as a part of our research process during the quarter, two of the Funds’ portfolio holdings took notable steps to address environmental sustainability. In addition, we engaged with two other companies regarding capital allocation. BASF, the large German chemical company, made a decision to carve out a business related to internal combustion engines and began investing significant amounts to develop a battery business. The company also committed to carbon reduction goals of net zero emissions by 2050. The CEO told us of the importance of this battery initiative in helping customers to meet their commitments to electromobility, but indicated the company will only make investments that have a visible return, making the company’s sustainability strategy more flexible and less risky in terms of profitability. In our view, this would appear to be a financially prudent step in reducing the company’s transition risk as the world continues to move toward a lower carbon economy, and should not compromise the compound of the company’s intrinsic value.”
4. Banco Santander, S.A. (NYSE:SAN)
Banco Santander, S.A. (NYSE:SAN) is a Spanish diversified financial services firm and is the 16th biggest banking company globally.
Like all the notable banks in the US, Banco Santander, S.A. also increased its prime lending rate by 75 basis points to 4.75% to match the lending rate of the Federal Reserve. European banks have been unable to perform like their counterparts across the Atlantic as the financial sector has observed a modest growth in this region compared to the fast growth in the US financial sector. Banco Santander, S.A. also has operations in North and South America. Such diversification has made it challenging for Banco Santander, S.A. to outperform its peers that are focused on a single geographic region.
3. AXA SA (OTC:AXAHY)
AXA SA (OTC:AXAHY) is a French insurance, investment management, and financial services company.
AXA SA is currently competing on multiple fronts at the same time. The financial sector is facing disruptive innovation in the form of rising financial technology and insurance technology entities. The company’s top line and bottom line are expected to be hampered by the rising competition. Furthermore, the conflict between Russia and Ukraine has started to impact the insurance and reinsurance operations of the company.
Analysts are bearish on AXA SA stock as they foresee the weak economic outlook of Europe to have a negative bearing on the future financial and stock price performance of the company.
2. ASML Holding N.V. (NASDAQ:ASML)
ASML Holding N.V. (NASDAQ:ASML) is a Dutch semiconductor chip manufacturer that is expected to come under immense pressure due to a looming recession.
The semiconductor industry has observed shortages in recent times due to ramped-up demand from various industries like consumer electronics, cryptocurrency mining, and electric vehicles. However, during a recession, the demand for consumer electronics and automobiles’ plummets significantly. This could dent the aggressive outlook of ASML Holding N.V.. The production facilities of ASML Holding N.V. are spread across the Netherlands, and the company caters to European customers mainly. This makes the company highly exposed to any negative development related to Europe. Although ASML Holding N.V. is a market leader in deep ultraviolet (DUV) and extreme ultraviolet (EUV) systems, it faces numerous challenges related to raw materials and supply chain disruptions.
Here’s what ClearBridge Investments said about ASML Holding N.V. in its Q1 2022 investor letter:
“During the quarter, we reduced our semiconductor exposure through the trim of ASML (NASDAQ:ASML) to manage concerns of a slowdown due to the risk of double ordering and potential softness in some consumer end markets. We increased our position in IT services with the purchase of Accenture as we remain optimistic about the long-term growth potential these companies provide, which is underpinned by the compressed digital transformation cycle, rising cloud adoption and growth in data-driven insights.
Despite the market volatility and hyper-focus on rising rates, chief information officer surveys continue to forecast resilience in IT budgets this year. Growth in IT spending for 2022 is expected to remain above the 10-year pre-COVID-19 average, according to Morgan Stanley. We believe this is a result of the strong secular underpinnings brought on by digital transformation and businesses focusing on increasing efficiencies through technology.”
Out of the 912 hedge funds in Insider Monkey’s database, 46 funds held a stake in ASML Holding N.V. as of Q1 2022.
1. adidas AG (OTC:ADDYY)
adidas AG (OTC:ADDYY) is a German manufacturer of apparel, fashion accessories, and footwear. The company has the distinction of being the biggest sportswear manufacturer in Europe and the second biggest globally behind NIKE, Inc. (NYSE:NKE).
Analyst sentiment on the stock is not too optimistic. On June 14, Erwan Rambourg at HSBC downgraded adidas AG stock from a Buy to a Hold rating and slashed the target price from €270 to €200. On a per ADS basis, the target price has been reduced from $143 to $106. The analyst cited COVID-19-related lockdowns in China, an adverse shift in foreign exchange, and inflationary pressures as the reasons for revising the rating and target price. Rambourg also thinks that the guidance of the sportswear company is at risk.
adidas AG was discussed in the Q1 2022 investor letter of Polen Capital. Here’s what the firm said:
“We added to the Portfolio’s position in adidas AG as we believe the company’s management team is making strides in positioning the company for faster growth. Innovative product development, along with interesting design and marketing collaboration initiatives, have been unlocking the company’s growth potential.
We also believe the continuing shift away from wholesale distribution to direct-to-consumer sales should drive steady margin progress. We estimate that adidas will grow earnings in the high teens annually over the next five years.”
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This article is originally published at Insider Monkey.
