An anti-crisis portfolio: Iberdrola at €8, Amazon at $2,956, and Visa

The crash shopping list: Iberdrola at €8 and Amazon at $2,956

Where does someone who works in the electricity sector, senses a recession, and at the same time wants to buy a house in just over a year put their money? The answer, dated April 9, 2020, in the midst of the first major cobi19 downturn, is hardly reckless: a three-pronged investment portfolio with 50% in index funds, 30% in Iberdrola, and 20% in cash. The approach admits that the list is "quite changeable depending on how events unfold" and that the returns on index funds have gone down the drain.

The indexed portion is split between 65% in the Amundi MSCI World, 20% in the Amundi MSCI Emerging Markets, and 15% in European EMU Govies bonds. The intention is to raise emerging markets to 25% at the expense of fixed income and wait for further drops before buying again, because the current price is considered "somewhat high." The cash, that 20%, is kept "to spend it all on buying specific stocks."

Which sectors are marked as the future?

The analysis identifies four key areas. Renewable energy, with an uncomfortable nuance: the construction of plants is considered a bubble that has already passed, and the real interest lies in smart distribution grids and especially in storage. Artificial intelligence, where Google, Amazon, and Microsoft are seen as very expensive and with no rush to enter. Sustainable and autonomous transport. And biotechnology, of which the author himself admits having no idea, so the route would be a Nasdaq Biotechnology ETF.

Here is the first fundamental clash with other strategies: while some bet on insurers and banks, this list is built almost entirely on utilities, technology, defensive consumer goods, and pharmaceuticals. The stated idea is to hold positions for about ten years and average down on each drop if there is cash.

Why is Iberdrola the cornerstone of the portfolio?

The utility is justified by direct knowledge of the sector and its international footprint in the UK, US, Mexico, Brazil, and, to a lesser extent, Portugal, as well as its early bet on renewables and offshore wind. The price considered reasonable is "around €8 or less," a level that would leave a P/E ratio below 15 and a price-to-book ratio of 1.5.

Endesa and Naturgy appear as second-tier alternatives. Of the former, it is stated that its future looks "flat, flat, flat" and that it is nothing but "Enel's cash cow." This is not a minor detail, because that same track record includes having bought Endesa above €16 and having sold it near €20 when Borja Prado left the presidency.

The price adjustment: from Tesla to Visa

The target list is the core of the material. Tesla in the $5XX range, Visa at $162, Alphabet at $1,120, Alibaba at $170, Berkshire at $175, AMD at $40, Microsoft at $160, Facebook at $155, and Disney at $85, plus Starbucks, PepsiCo, and Square. Alibaba deserves separate analysis: it trades at $196 with a P/E of 56, ROE of 19%, and margins of 35%, and the entry is marked between $165 and $160.

Not everything on the radar is growth. AT&T is defended as a value stock for collecting dividends, with a payout of 59% and €2 per share, although it is assumed that it "will be flat forever." The comparison is not gratuitous: in five years the telecom barely fell 8%, while Red Eléctrica dropped 20% and Enagás 33%.

Why sell index funds and switch to bonds?

Over time the story turns and does so in several directions. All index funds are sold with capital gains and transferred to European bonds to avoid going through Hacienda (Spanish tax agency) yet, keeping only individual stocks. The portfolio is reduced to Iberdrola, Microsoft, Alibaba, and Visa, to which Johnson & Johnson is later added. The strategy mutates to a weekly DCA in companies that are seen at a fair price.

The underlying reason driving that shift is asset-related: the intention to make the down payment on a home in a year or a year and a half and the antiestéticar of a bear market after the summer. The entry into Amazon at $2,956 is justified because the price-to-free-cash-flow is below its five-year average. All while thinking out loud about exiting everything.

What do Iberdrola's figures and its debt say?

The biggest alert comes with the industrial plan: Iberdrola announces the largest investment plan in its history, €75 billion through 2025, with €18.8 billion in dividends and €3 billion in divestments. Debt, according to circulating calculations, would go from €38.2 billion to €56.1 billion, 47% more. The stock, meanwhile, exceeds €12 and reaches all-time highs.

The answer to that antiestéticar comes in one line: "The important thing is that the debt interest can be covered with EBITDA." That is, as long as gross profit can withstand interest payments, the plan continues.

In the end, so much shopping list was reduced to four names and a handful of bonds. Anyone would say that the market does not hand out medals to those who do their homework.