Swiss shareholders-will the year of the stocks have been left behind in 2022?

The cash Insider reports in the insider briefing prior to the market on the latest observations on what is happening on the Swiss market and is also active on Twitter under @cashInsider. Take a look at the tracker certificate on the Swiss stock favorites from cash Insider.

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If I had told someone in the first few days of January that the Swiss Market Index (SMI) would scratch the 13,000 point mark and end the stock market year with a whopping plus of more than 20 percent - I would probably be in favor been declared insane.

If you include the stronger Swiss franc, the Swiss stock market was even able to keep up with the New York Stock Exchange. American stocks have been considered the measure of all things for years now.

As surveys by the consulting firm Lipper show, equity funds have flowed in almost $1 trillion over the past 12 months. That is more than has been cumulatively invested in equity funds in the previous 20 years. In the last two weeks alone, equity mutual funds have enjoyed more than $40 billion in inflows. A large part of this flowed into funds with American stocks, including 2 billion dollars in the “TQQQ” alone, a three-fold leveraged ETF on the Nasdaq 100 Index.

It's overheating symptoms like this that make me restless at night every now and then. The fear of market players there being able to miss out on something is increasingly turning into sheer greed. Just a few weeks ago, I reported on stock market excesses that seemed almost laughable.

Added to this is the dwindling market breadth. Just five stocks are responsible for this year's gains in the Nasdaq 100 Index. All other stocks are now trading an average of a good 40 percent below their high for the year. One could almost speak of a creeping bear market, as according to the textbook this is the case when a stock or an index falls by 20 percent or more from the top. If that doesn't make you think...

In Switzerland, too, there are deep rifts between winners and losers. Growth stocks are on the bright side, while value stocks are predominantly on the dark side – i.e. financial stocks and cyclicals. Growth stocks have never been as expensive as they have been in comparison to value stocks. The historically low interest rates are partly to blame. If inflation is included, (real) interest rates are minus 5 percent or more.

However, the question is not if, but rather when this pendulum will swing back towards value.

Because as highly contagious as the new South African variant of the Covid-19 virus is, there are indications that this variant will sooner or later displace most other variants. That would actually be good news. At least as long as the healthcare system does not reach its limits. The new South African variant is not only significantly more contagious than previous variants, but according to current knowledge leads to a comparatively weak course of the disease. In other words, it might be possible to tame Covid-19 into a virus comparable to seasonal flu thanks to this variant. When it comes to infection, it always helps.

That, in turn, would speak – together with the almost frighteningly strong surge in inflation – for rising interest rates. And they are known to be poison for growth stocks and good for substance stocks. 2022 could therefore also be the year of the lagging shares here in Switzerland.

So all I can do is hope that my stock favorites for 2022 are under a more favorable star than my value-heavy favorites for 2021. Incidentally, the adjustments to the tracker certificate are automatically implemented by our partner Leonteq.

I'm starting the new year with the following ten stocks:

Novartis (weighting: 15 percent)

In the current year, Novartis shares have lagged far behind the other two SMI heavyweights Roche and Nestlé. Unlike its rival Roche, the Covid 19 pandemic did not result in one or two additional sales dollars at Novartis. Quite the opposite: Important medicines from the Basel-based pharmaceutical company were even selling more slowly than before due to the pandemic. The fact that sales of the expensive gene therapies fell short of expectations is not without a good dose of irony. In any case, company boss "Vas" Narasimhan has not yet been able to make a name for himself as a skilful architect of value-generating takeovers. At first, the stock market reacted coldly to the news that Novartis was going to part with the Roche package for the equivalent of around $20 billion - which could also have something to do with the fact that Narasimhan tacitly took a 13% discount on Roche bearer shares percent compared to the closing level the night before the announcement. An expensive major takeover could be imminent, that was the fear at the time. For a few weeks now, however, we have known that the 20 will return their $15 billion to shareholders via a multi-year share buyback program. The Basel-based company has already made a first supplementary company purchase when they recently incorporated the British company Gyroscope Therapeutics for 800 million dollars and a further 700 million dollars in possible milestone payments. The future direction of acquisitions under "Vas" Narasimhan is unmistakable, since Gyroscope is active in the development of gene therapies.

Longtime readers of my column know that I'm not a fan of share buybacks. In view of the still depressed price and valuation levels and the rather moderate success of the company boss in company takeovers, the planned buyback is a blessing from the shareholders' point of view. And the US approval of the groundbreaking cholesterol-lowering drug Leqvio, which became known last Thursday, shows that the research and development department of the Basel company should by no means be written off, despite several setbacks. In any case, I see room for improvement in the share price over the course of the next year.

Price-to-earnings ratio (P/E) 2023: 18 Dividend yield: 3.9 percent

Holcim (weighting: 15 percent)

Holcim shareholders can look back on a rather disappointing stock market year. While quite a few other European construction supply stocks enjoyed double-digit percentage price gains, the world market leader even posted a slight minus due to the low-tax train. The blame for this is less to be found in day-to-day business. Quite the contrary: Under company boss Jan Jenisch, things are actually running pretty smoothly. The organizational structure was streamlined and inefficiencies eliminated as far as possible. However, the inglorious role of the French Lafarge in Syria hangs over Holcim like the sword of Damocles. The accusation: The French had paid protection money to the IS in the years before 2014 and were thus guilty of terrorist financing. A hefty fine from the US Department of Justice is considered safe. Quite a few analysts are even anticipating a billion-dollar claim that Holcim could face. The company itself is silent on the matter, suggesting that talks to resolve this woeful matter have been going on for weeks. A settlement payment of the equivalent of CHF 1.5 billion or less would possibly even be received positively on the stock exchange.

I am impressed by the operational progress made under Jenisch. The same applies to the acquisition strategy, which is strongly reminiscent of that of his former employer Sika. In retrospect, the takeover of Firestone Building Products, which became known in the first few days of January, proves to be a stroke of luck. The roofing specialist made an above-average contribution to growth and margin improvements at Holcim over the course of the year. I think it is very likely that Jenisch will make the next big leap with the purchase of Malarkey Roofing Products that was announced last Thursday. With this second acquisition, Holcim takes another big step towards the goal of a more specialized and less carbon-intensive future.

In any case, I do not rule out the possibility that 2022 could be a harvest year for Holcim shareholders who are not exactly used to success.

Price-Earnings Ratio (P/E) 2023: 9.5 Dividend Yield: 4.3 percent

Zurich Insurance (weighting 10 percent)

Like Credit Suisse stocks, Zurich Insurance stocks are a bet on rising (dollar) interest rates. Added to this is the strong position of the insurance group in the lucrative corporate customer business with its rising premium rates. Under CEO Mario Greco, the company has some interesting complementary acquisitions to show for itself. And although three quarters of the annual profit is distributed to shareholders in the form of dividends, further acquisitions could follow. Optimizing the life insurance portfolio promises additional upside potential. According to analysts, Zurich Insurance should be able to reduce its tied-up capital by up to $3.6 billion. Then nothing would probably stand in the way of a profit-consolidating share buyback program of a similar magnitude. Or the insurance group lets the billions flow into supplementary takeovers. As is well known, company boss Mario Greco has a corresponding track record.

Price-Earnings Ratio (P/E) 2023: 11.9 Dividend Yield: 5.4 percent

Credit Suisse (weighting: 10 percent)

2021 was not a good stock market year for Credit Suisse (CS) shareholders. While the securities of arch-rival UBS have increased in value by more than 30 percent since January, those of the smaller of the two big Swiss banks have suffered the ignominy of this year's SMI bottom with a drop of a good 20 percent. CS left no faux pas and squandered a good 5 billion francs in connection with the collapse of the Archegos investment vehicle. Actually, things can almost only get better for the big bank and its shareholders in the coming year. The fact that CS shares are currently valued at a price-earnings ratio (P/E) of just 6 based on next year's estimates is a clear vote of no confidence. A vote of no confidence in the company itself, but also one against the new chairman of the board, António Horta-Osório. A few weeks ago, he personally caused a minor scandal when he quickly disregarded the local quarantine regulations. It also worked that the native Portuguese was traveling with the bank's private jet. Horta-Osório doesn't exactly get (ESG) points with that either.

Even knowing that culture change won't happen overnight, I still think CS shares are an attractive bet on rising interest rates. Always hoping that the big bank has learned its lessons from the Archegos debacle. Unless it makes another financial blunder, it should actually be possible to catch up with the shares of UBS and Julius Baer and with the broader market over the next few months. I could well imagine powerful financial investors buying into CS and forcing it to be broken up or sold to another big bank. The dissatisfaction among the shareholders of Credit Suisse offers an almost favorable breeding ground for this.

Price-Earnings Ratio (P/E) 2023: 5.4 Dividend Yield: 3.3 percent

Oerlikon (weighting: 10 percent)

Loyal readers of my column know that I have counted the shares of the surface specialist Oerlikon among my favorites for the third time in a row. In my opinion, the company's dependence on the automotive industry is completely overestimated. The strong foothold in the textile machinery business helps to reduce fluctuations in earnings, as this line of business more or less has a life of its own.

Oerlikon has been reported to have an interest in Praxair's surface treatment business for years now. However, this is not yet ready to be said. A takeover of these similar activities would be a quantum leap for the Swiss on the way to market leadership and would possibly be welcomed by the stock exchange.

But even without the purchase of Praxair's surface treatment division, Oerlikon's rock-solid balance sheet offers room for additional company acquisitions or for another special dividend, as the company has already paid out in the past.

Price-Earnings Ratio (P/E) 2023: 16.3 Dividend Yield: 3.7 percent

Logitech (weight: 7.5 percent)

In the early summer of this year, Logitech was still considered one of the local winners of the Covid 19 pandemic. The triumph of the video games industry and the trend towards working from home made the cash register ring loudly for the consumer electronics manufacturer. At this point, not only were the products of the Lausanne company selling like hot cakes, but also their shares. At peak prices of 120 francs and more were paid for the latter, recently it was less than 80 francs. Admittedly, the big growth spurt is likely to be behind and not in front of the company. Nevertheless, as one of the most innovative providers, Logitech should be able to benefit from structural growth in the gaming accessories business. The stock market still seems to resent the consumer electronics manufacturer for the fact that this year's growth and profit targets were not raised when the quarterly results were published. I wouldn't be surprised if, looking back, the guidance for the year turns out to be conservative. Fantasy is also based on the plans of the Facebook mother Meta with their Metaverse. In any case, according to Logitech, the Lausanners could have huge business opportunities, for example with interactive keyboards, mice and other peripheral devices for the Metaverse.

Then there's the rock-solid balance sheet. This offers space, either for supplementary company takeovers or for profit-enhancing share buybacks. Why not do one and not let the other go?

Price-Earnings Ratio (P/E) 2023: 18.3 Dividend Yield: 1.1 percent

Helvetia (weighting: 7.5 percent)

In 2021, Helvetia shares recovered at least part of their discount to the adjusted book value. However, there is still room for improvement in this regard, as the high-dividend stocks are still trading below their book value. Every substance investor's dream. Last but not least, this may have something to do with the insurance group's rather disappointing securities result. As last year's results suggest, investment officials lost their nerve when share prices tumbled due to the pandemic. Looking back, there were no major consequences for day-to-day business. To date, shareholders have been waiting in vain for a strong price recovery. The discount compared to the adjusted book value - analysts estimate the book value at around CHF 125 per share - even makes Helvetia a possible takeover target. Speaking of takeovers: in retrospect, the takeover of the Spanish primary insurer Caser has proven to be a stroke of luck for the eastern Swiss company. The solid balance sheet allows for further company purchases based on a similar pattern. Eat or be eaten, that remains the question.

Price-to-earnings ratio (P/E) 2023: 10.4 Dividend yield: 5 percent

Stadler Rail (weighting: 7.5 percent)

Stadler Rail shareholders have been faced with the same grueling picture for months now: the train builder's shares sometimes gain a few francs within a few days - only to lose the same again in the days that follow. Regardless of whether the company from Bussnang in Thurgau has landed new major orders or whether company patron Peter Spuhler is optimistic about day-to-day business in the business media: Stadler Rail is living a wallflower existence on the stock exchange.

It seems like yesterday when Stadler Rail went public in April 2019 with advance praise. The share has what it takes to become a "people's share", as it was called at the time. But the Swiss prefer to travel in the comfortable Stadler train compositions than to laugh at these shares.

Company patron Spuhler is not to be envied: He has to get his passion back on track – which, given the problems in the global supply chains, will not be easy for him. And he must not neglect the search for a capable successor to the executive chair. From a shareholder perspective, however, patience should finally pay off in the coming year. I would be surprised if the company didn't win the multi-billion dollar tenders from SBB and ÖBB at the second attempt.

Price-Earnings Ratio (P/E) 2023: 15.5 Dividend Yield: 3 percent

Cembra Money Bank (weight: 7.5 percent)

The news that partner Migros is going its own way with Cumulus credit cards in the future and is working exclusively with the in-house Migros Bank hit the shares of Cembra Money Bank quite a bit. It remains to be seen whether and how many credit card customers will turn their backs on the orange giant of Cembra Money Bank. Analysts are assuming that around half of the income generated with Cumulus credit cards could be lost by the middle of next year. The company itself is assuming annual profits will be up to 15 percent lower, which according to the Zürcher Kantonalbank would be the worst possible outcome. Finally, Cembra Money Bank is looking for new potential partners. If this search is successful, it could breathe life back into stocks.

Since the investor day a few weeks ago, we have known that the company intends to stick to its current dividend policy and pay out at least CHF 3.75 per share annually. From today's perspective, that would correspond to a distribution yield of almost 6 percent. This alone means that the downside potential on the price side is within a manageable range.

Price-Earnings Ratio (P/E) 2023: 13.8 Dividend Yield: 5.6 percent

To the Rose (weighting 5 percent)

Opinions are divided on the shares of the Zur Rose mail-order pharmacy. Either you believe in the growth story or you don't. Since the German Federal Ministry of Health (BGM) decided at the last minute to indefinitely postpone the nationwide introduction of electronic medication prescriptions, doubters and skeptics have felt a boost. The decision cost the securities of Zur Rose almost 60 francs – and that within just a few days. Much to the delight of short sellers. According to the latest surveys by the consulting firm IHS, no less than 26 percent of the outstanding securities are speculating on declining prices, with an estimated third being "delta hedges" on the part of convertible bond holders.

There is no question: the stock market fears nothing more than uncertainty. But that is exactly what also offers room for positive surprises after the price debacle of the last few weeks. The question is not whether, but rather when electronic drug prescriptions will become mandatory throughout Germany. And the fact that Zur Rose and other mail-order pharmacies will cut their piece of the pie is as certain as the Amen in church.

That's why I settle down at Zur Rose with a manageable 5 percent. If the regulatory fog clears, I will add more at the expense of tactical liquidity (weighting 5 percent).

Price-Earnings Ratio (P/E) 2023: n.a. Dividend Yield: n.a.