What are the best Spanish stocks to buy in October?

  • Retail monthly sales in the country advanced for the fourth consecutive month in August
  • Spain is set to approve the extension of furlough scheme until January 31
  • Inditex and Telefonica seem well-positioned to outperform the rest of the market in the short-term

After logging the lowest levels recorded since 2003, the Spanish benchmark index IBEX35 recovered nearly 40% of losses in June. However, the rebound has proved to be unsustainable so far, with IBEX35 rotating lower again on slower-than-planned recovery. 

Fundamental analysis: Slower recovery

EU-harmonised consumer prices in Spain slipped by 0.6% year-over-year in September, according to flash data provided by the National Statistics Institute (INE) on Tuesday, recording the same drop of 0.6% from last month.


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Data also showed that Spanish national consumer price index dropped by 0.4% this month on a yearly basis, as opposed to a 0.5% drop in August. Retail monthly sales in the country advanced for the fourth consecutive month in August, the INE announced, but still down from its pre-lockdown figures.

In August, retail sales jumped by 1.8% month-over-month, following a 1.2% surge in July and a strong rebound in May in June after Spain eased its lockdown measures. However, calendar-adjusted sales were 2.4% down compared to year-ago levels, up from a 3.9% fall recorded in July and far better than the double-digit drops registered between March and May.

Sales at major chain retailers advanced 2.3% year-on-year, while other shopping areas stayed in the red. Consumer sales recorded a sharp rebound since April, when the Spanish government imposed one of the most rigorous lockdowns in Europe, resulting in a 31.6% year-over-year decline in retail sales.

Still, the recovery results were different from region to region. Regions that mostly rely on tourism including the Balearic and Canary Islands continued to strive, recording year-on-year retail sales slumps of 15.3% and 14.2%, respectively, the INE reported.

In August, demand within all product sectors including furniture and appliances, marked the best recovery results, with sales in that month climbing by 5.9% compared to July levels. Furniture makers saw a particularly sharp rise in demand after the lockdown in June.

Spain is set to reiterate its outlook for economic contraction in 2020 in the range of 10% and 11%, compared to a previous forecast of 9.2% released in May, newswire Europa Press reported Sunday, according to sources from the government.

Spain will provide an updated GDP forecast in 2020 in early October and is also expected to widen its budget deficit target, compared to the 10.3% of GDP target announced in May, the newspaper said.

The country’s economy shrank by a record 17.8% in Q2 in comparison with the previous quarter and 21.5% down compared with the same quarter a year ago.

Furlough scheme to be extended

Spain is expected to approve the extension of furlough scheme that helps hundreds of thousands of Spanish workers until January 31. 

As a fresh surge in coronavirus cases continues to batter the Spanish economy, the government has struck a deal with labour unions for an extension of the ERTE scheme, however, it still needs more support from representatives of businesses, the sources said.

Although the top businessman organization in Spain, CEOE, still hasn’t approved the agreement, the cabinet is expected to authorize the extension of the scheme that will expire on Wednesday.

The ERTE scheme has been supporting millions of Spaniards since mid-March, when the government enforced the lockdown to fight the coronavirus-induced crisis. 

2 attractive stocks to buy in October

Given the scale of the pandemic-fueled recession, it is advised to focus on the bigger companies as they are usually better equipped to withstand the financial pressure. To this end, we present 2 stocks that are good investment options at the current valuation levels. Learn more about how to choose winning stocks. 

Telefonica

Telefonica (BME: TEF) seems like a good pick on the back of the 5G network rollout. The telecommunications giant noted it expects around three-quarters of the total population to have access to its next-gen mobile internet before the start of the next year.   

Telefonica stock monthly chart (TradingView)

“Spain will reap great benefits. 5G constitutes not only a new generation of mobile telephony, but it’s also a revolution in terms of its practical applications for all the sectors, and because it allows the extension of ultra-broadband coverage to rural areas, many of them depopulated,” said the President of Telefonica Maria Alvarez-Pallete.

The company has a strong balance sheet after it sold its British unit O2 Telecom to Hutchinson-owned Three UK in May for £9.40 billion. In Germany, its Telefonica Deutschland signed an agreement with Telxius worth nearly £1.3 billion.

Telefonica stock price hit an all-time low at €2.85 per share this week. The stock is well-positioned to gain immensely once a more meaningful recovery takes place. The buyers will target €6.60 as a key target on the upside. This translates into an upside of over 130% from the current levels. 

Inditex

Inditex (BME: ITX), the Zara-owner and one of the world’s largest fashion retail companies, has enjoyed a great second half of the year so far. Nearly all stores (98%) had reopened following the lockdown, enough to report a second-quarter net profit of €214 million.


Inditex stock daily chart (TradingView)

It is worth noting that the company spent over €308 million to integrate its stores and online platforms. This will make the retail giant better prepared for the transformation towards e-commerce and digital sales.

Inditex share price trades over 25% lower since the beginning of the year. A return to 200-MMA at €26.47 signals an upside of nearly 12%. Levels above the €30 mark remain a key target for the bulls. 

Summary

Retail monthly sales in Spain climbed for the four month in a row, but still shy from its pre-lockdown figures. Still, the recovery is taking place and Inditex and Telefonica seem well-positioned to outperform the rest of the market in the short-term.

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