In this article, we discuss 5 European stocks billionaire Ray Dalio is shorting. To read our analysis of the economic environment, go directly to Billionaire Ray Dalio is Shorting These 10 European Stocks.
5. BASF SE (OTC:BASFY)
BASF SE (OTC:BASFY) is a German chemical company and the biggest chemical producer globally.
BASF SE (OTC:BASFY) 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 (OTC:BASFY). 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 (OTC:BASFY) 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 (OTC:BASFY) 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. (NYSE:SAN) 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. (NYSE:SAN) also has operations in North and South America. Such diversification has made it challenging for Banco Santander, S.A. (NYSE:SAN) 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 (OTC:AXAHY) 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 (OTC:AXAHY) 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. (NASDAQ:ASML). The production facilities of ASML Holding N.V. (NASDAQ:ASML) 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. (NASDAQ:ASML) 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. (NASDAQ:ASML) 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. (NASDAQ:ASML) 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 (OTC:ADDYY) 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 (OTC:ADDYY) 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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