BROKERS’ NOTES: Buy Enel, sell Walmart

Nick Kunze, senior portfolio manager: Sanlam Private Wealth

Buy: Enel

As last week’s market ructions showed, volatility is coming back after years of calm (some would say complacency). To that end, it’s probably time to get defensive as the global economy also appears to be losing momentum. Purchasing managers’ indices are rolling over and last week’s US jobless numbers were a wake-up call. Companies in sectors such as health care, utilities and consumer staples tend to perform relatively well during slowdowns because their products and services are always in demand.

Enel fits this profile. It is an Italian-based multinational company engaged primarily in power distribution, and an operator in the global power, gas and renewables markets. It is active in Europe and present in more than 30 countries. At the end of July, the company recorded a good set of results with solid growth and an increase in net profit. As much as the increase was due to the recovery in energy prices, analysts also expect long-term growth potential to be supported by rising demand for data centre electricity (read AI). At a p:e of 11 and a dividend yield of 6.71%, the stock is an attractive addition to any macro portfolio.

Sell: Walmart

Walmart is a US multinational retail corporation that operates a chain of hypermarkets and discount and grocery stores in the US and 23 other countries. It is the biggest retailer in the US, with $534bn in 2023 domestic retail sales. Amazingly, Walmart’s US retail sales are 113% greater than those of the runner-up, Amazon.

But US consumers are reining in spending, and that is not good in a country where private consumption accounted for 67% of nominal GDP. Warnings from several companies’ earnings statements last week offered the latest evidence of belt-tightening among US households as their pandemic-era savings evaporate after years of persistent inflation. Walmart stock is up more than 30% year to date and trades at close to 28 times earnings. Despite the labour market remaining strong, job growth has weakened and the unemployment rate ticked up last month. The stock is a sell at current levels.