American technology companies have become so indispensable that they are the talk of the town on the markets. For example, on August 28, global stock markets held their breath awaiting the quarterly results of semiconductor manufacturer Nvidia. When the publication was released, the punishment was immediate. Since the Californian giant only managed to double its quarterly results, while it had tripled them in previous periods, the stock fell by 6.38% the next day. Investors felt relieved, however, because the company shows no signs of slowing down significantly.
Yes, but here we are, eight days later, a twist shakes the financial world: the favorite stock of savers is now in the crosshairs of the American Department of Justice for anti-competitive practices. Nvidia then plummets by 9.5% and global markets go into the red. A very relative correction: the share price has exploded by 2,180% in five years and by 108% since the beginning of the year. In this context of high volatility, individual investors are put to the test, especially as political and monetary deadlines confuse the issue a little more. Here are nevertheless five avenues to explore, with a very real upside potential in the long term.
American tech, against all odds
Despite Nvidia’s recent setbacks, the “magnificent seven” reign supreme on the world’s stock markets. Their capitalization weighs 35% in the S&P 500 index, which includes the 500 largest companies listed in the United States. These are Alphabet, the parent company of Google, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla, although the latter has lost some of its luster, having been forced to lower the price of its cars and revise its margins downwards in the face of a declining electric car market. As a result, the car manufacturer is the only member of the tribe to record a decline in its share price since the beginning of the year (-13%).
These American giants are taking full advantage of their dominant position, posting good net margins like Nvidia (55%), Microsoft (36%) and Meta (35%). They are also the creators – or developers – of artificial intelligence (AI) and are benefiting fully from its growth. If, as some predict, AI will transform the world in the same way as the Internet, this revolution should offer them a formidable growth driver for the next fifteen years. Of course, these stocks are expensive: Nvidia is worth 37 times its estimated earnings in 2025, Microsoft 30 times. But, as Christopher Dembik, investment strategy advisor at Pictet AM, points out, “their valuation is lower than that reached by telecommunications groups and equipment manufacturers such as Cisco, Nortel or Lucent at the time of the Internet bubble in 2000, while posting significantly higher profitability”. The risk of a market aberration therefore seems to have been ruled out to date.
Japan, for a change from the United States
The American economy is showing good resilience. Growth is slowing without collapsing, leading a majority of financial experts to predict a soft landing for the country. Inflation has fallen below 3%, which gives the Fed latitude to restart the economic machine while controlling the rise in prices. “But some negative signals are troubling: the household savings rate is falling sharply, defaults on short-term bank loans are increasing and, above all, the job market seems to be running out of steam, analyzes Olivier Cornuot, director of collective management at Matignon Finances. If employment deteriorates, confidence could quickly crumble and the markets correct for fear of a collapse in American growth. We risk experiencing periods of stock market turbulence as long as the situation remains uncertain.”
So, why not choose to diversify your savings by investing in a country whose situation is going against the grain of the United States and Europe: Japan. After twenty-five years of deflation, inflation is finally making a comeback in the archipelago! Even if economic growth remains weak, Japanese companies are investing and the increase in wages should boost consumption among households who have well-stocked nest eggs. The Japanese stock market is recovering. The Nikkei 225, which includes the 225 largest companies established in the country, has risen by almost 15% over a year, despite the technical decline that occurred this summer. Since the beginning of the year, the share price of electronics companies such as TDK and Hitachi has jumped by 68% and 57% respectively, while that of the IT giant NEC has climbed by 51%. Pharmaceutical company Daiichi Sankyo recorded a robust +43%, while Canon rose 34%.
In Europe, selectivity is essential
The pillars of the European economy are not in the best of shape. France is experiencing a period of political instability and the explosion of its public deficit has led the European Commission to put it under surveillance. In Germany, household consumption remains sluggish while industrial production is struggling to recover. As for Italy, it has been in deflation since October 2023.
However, some European industrial flagships with international customers deserve attention, such as the Dutch chip manufacturer ASML and major pharmaceutical laboratories such as Sanofi and AstraZeneca, which have world-renowned drugs in their pipelines. Not to mention French luxury with LVMH, Hermès and L’Oréal, sure values. The strong increase in spending on military equipment decided by European governments also favors, in the long term, defense players such as Airbus, Dassault Aviation, Safran, Thales and the German Rheinmetall.
French SMEs: affordable nuggets
For several years, SMEs – “Small & Mid Caps” in financial jargon – have no longer been the stuff of dreams for investors. Stock market flows have shrunk like snow in the sun. One of the main reasons is the return of inflation and the need for central banks to raise their key rates. This has had the effect of increasing the cost of credit for these SMEs in constant search of financing. “The current trend of falling rates is a positive factor for these stocks,” notes Bastien Guillaud, manager at Matignon Finances. “Overall, they are poorly valued. But in the event of a brutal recession hitting the United States, they would be the first to be affected by the fall in the markets. If, on the contrary, an economic recovery without inflationary tensions is on the horizon, they will benefit from the stock market rebound. It is still a little early to tell. But if you want to position yourself as a ‘scout’ to avoid jumping on the bandwagon, focus on profitable SMEs.”
Our country is full of listed, dynamic and innovative nuggets, with an economic model that allows them to generate profits. They are also offered at a more than reasonable price, in all sectors. Here are a few: Lumibird is positioned as the European leader in laser technologies, GTT designs membranes dedicated to the transport and storage of liquefied gases, BIO-UV Group develops water disinfection systems using ultraviolet, salt electrolysis and ozone, TFF is a family group that manufactures high-end oak barrels used for the aging of fine wines and spirits.
Yield values: the assurance of big dividends
Faced with American macroeconomic uncertainty and the gloom affecting Europe, it may be relevant to bet on financially solid companies, positioned on mature markets and whose corporate culture rewards shareholders through the regular payment of dividends and the implementation of share buyback campaigns. With, as a key, the certainty of obtaining a comfortable return, often higher than 5%.
By including a few high-yield stocks in your portfolio, you benefit, in a way, from insurance by granting a welcome financial bonus when global markets are in a bad way. Groups like Axa, BNP Paribas, Engie, TotalEnergies, Veolia Environnement and Vinci are known for being generous to their shareholders.
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