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    Home»Funds»Fund manager names a stock to own if recession hits
    Funds

    Fund manager names a stock to own if recession hits

    August 11, 2024


    As fears of a recession grip stock markets and consumers get squeezed, outperforming fund manager Sean Peche is betting on an unexpected retail player: the French multinational Carrefour . Peche, a portfolio manager at Ranmore Fund Management, highlighted the company’s defensive nature and ability to grow earnings amid inflation as a key attractive quality. The stock , also traded in the U.S., Germany and Switzerland , is the second-largest holding in the Ranmore Global Equity Fund, which outperformed the S & P 500 index in 2023 with a 31% return. Peche noted that Carrefour has significantly increased its revenue over the past few years while maintaining stable inventory levels. The retailer’s total revenue increased from 74.2 billion euros ($80.96 billion) in 2018 to 84.9 billion euros in 2023, according to FactSet data, a rise of 14.4%. He attributed this to the company’s technological advancements, saying: “They’ve been using technology and AI to improve the inventory because of weather forecasting and optimizing inventory.” “You’ve got a company that’s trading on six times earnings, that pays you a nice 5% dividend yield, with a great management team, which is unloved,” Peche told CNBC’s Squawk Box Europe Friday. CA-FR 5Y line However, the stock has declined 23% over the past 12 months, which Peche said was due to investor interest in AI and technology stocks over consumer staple companies. The fund manager also highlighted Carrefour’s growth in own-label products, which now account for nearly 40% of revenues. As consumers trade down to more affordable options in difficult economic times, Carrefour benefits, as they earn higher margins on own-label products than on branded ones. Growth opportunities A potential growth driver for Carrefour is its expanding advertising business, according to Peche. Following other major retailers like Amazon , Tesco and Sainsbury’s , Carrefour monetizes its online platforms by allowing brands to pay for prominent product placement. “That is pure cream if you think about it. There’s not a lot of cost involved in it,” Peche added. Carrefour’s international operations also appear to be showing promise, with Peche highlighting the company’s Brazilian operation, which he said is turning around. The company makes nearly half of its money in France and the rest overseas, including almost 15% of total sales from Brazil. Analyst views The consensus price target of all analysts polled by FactSet is 17.35 euros a share, giving the stock 25% upside potential. However, not all analysts share Peche’s enthusiasm for Carrefour over the near term. Cedric Lecasble from Stifel pointed out that during the high inflationary periods between 2021 and 2023, a “focus on protecting profitability weighed on competitiveness.” Lecasble noted that while Carrefour has made price investments to stabilize market share in France, similar decisions in other European markets have put more pressure on profitability. Sreedhar Mahamkali from UBS also took a more cautious stance in a note to clients on July 25 after the company reported its annual results. He said Carrefour has projected 2.5 billion euro in adjusted profit on the back of a second-half economic rebound in Europe, which Mahamkali “prudently” does not anticipate. “Indeed we model a further modest decline in [adjust profit in the second half],” he added.



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