It’s not just our country that is experiencing profound political changes. Across the world, nationalistic fervor has erupted, causing severe consternation among progressives and liberals.
Arguably, however, the upcoming French elections will have a pronounced impact, greater even than the unprecedented U.S. general election. This extends beyond the obvious effect on French stocks. Beginning on Sunday’s first-round vote, the French could cement a new normal for the western world.
Most of the mainstream attention is centered on Marine Le Pen, and for good reason. She is the candidate for the National Front, a far-right political party if you couldn’t tell from the name. According to Britannica, the National Front initially started from the fringes of the political spectrum. But by the 1980s onwards, the party made considerable progress. A major reason they have not found decisive success was because rival politicians promised conservative goals, particularly tough immigration controls.
The danger for progressives and the French left is that National Front voters are no longer for sale. While politicians promised a crackdown on immigration, they were empty words. In recent years, France has become the hotbed of unimaginable horrors at the hands of radical Islamic terrorists. The French are many things, but they are not stupid. Something desperately needs to be done, and the National Front offers a visceral solution.
Indeed, a real possibility exists that Le Pen will rise as the victor of the French elections. We have witnessed similar shockwaves via Brexit and President Donald Trump. In both of these events, the mainstream media ridiculed the conservative opposition that would later win out.
Even more surprising, the financial markets responded optimistically to the two landmark decisions. Thus, it’s not unreasonable to assume that French stocks will rally under a Le Pen presidency.
In fact, French stocks are among the top performers in the global markets this year. And one cannot say that French investors are 100% sure that Le Pen will not win. The latest read on the upcoming vote is too close to call. Furthermore, they must surely realize that any outbursts of radicalism will only bolster the National Front.
Instead, I believe the rise in French stocks is an acceptance of the new normal. Should Le Pen win, she will steer France and the rest of Europe to the political right. If she loses, the National Front has done so much that their voices can no longer be ignored.
Don’t expect the markets to penalize the far right. Money only cares about stability, and if that means more nationalism, so be it. Here are three French stocks that will benefit, irrespective of who wins the French elections.
French Stocks to Buy: Air France (AFLYY)
The past week was an ugly one for airliners. Although United Continental Holdings Inc (NYSE:UAL) rightfully absorbed the brunt of the damage due to its “passenger re-accommodation,” airline stocks have generally performed poorly. Some of that has to do with the negative light that struck the industry. While other airliners don’t necessarily beat their passengers unconscious, they’re all guilty of overbooking their flights. What happened to United could have happened on any number of carriers.
Just don’t tell that to Air France KLM SA (ADR) (OTCMKTS:AFLYY). This is one of the few airliners that’s getting it right this year. Against its January opener, AFLYY is up a whopping 51%, handily beating out its international rivals.
Should Le Pen win, AFLYY stock could experience a bonus rally. Recall that when Donald Trump took the White House, companies like Delta Air Lines, Inc. (NYSE:DAL) veritably soared. This occurred despite the fact that Trump threatened — and later made good on — banning countries compromised with terrorism.
For AFLYY in particular, a Le Pen presidency offers security. No one is going to admit that on an official basis. Still, why would an airliner jump 51%, especially when its home nation has been ravaged by terrorism? Regardless of the result of the French elections, Le Pen has forced her rivals to recognize growing conservative dissent.
These difficult discussions are a net positive for AFLYY, which depends on security for its business.
French Stocks to Buy: Sanofi (SNY)
Much like the retail sector, the American healthcare market is imbalanced, to say the least. Pharmaceuticals especially is a tough nut to crack. The subsector benchmark SPDR S&P Pharmaceuticals (ETF) (NYSEARCA:XPH) is up 7.1% YTD, but it went through turbulence to get there. Healthcare also represents President Trump’s first failure in office.
Of course, Sanofi SA (ADR) (NYSE:SNY) is hoping for a warmer reception once the French elections are finally over.
So far, the signs are very encouraging. SNY stock is up 11.2% YTD, taking a commanding lead over several large-capitalization pharmaceutical companies. Ironically, President Trump sparked the resurgence in SNY. The day after the U.S. elections, Sanofi gapped up 4.6%. This move helped break a downward-trending consolidation pattern. Moving forward, SNY investors will be looking to take out the previous highs of 2014 and 2015.
SNY could very well enjoy a two-fold benefit. First, it has significant exposure to the U.S., which is favorable considering President Trump’s push for fewer regulations. While health insurance reform flopped, all industries are perking their ears towards a less onerous regulatory environment. Second, SNY, along with other French stocks, could benefit from strong-willed leadership.
We’ll have to wait and see, but the forecast for Sanofi looks promising.
French Stocks to Buy: Orange SA (ORAN)
Orange SA (ADR) (NYSE:ORAN) is a major telecommunications firm, specializing in both residential and corporate services. Think of it like a French version of AT&T Inc. (NYSE:T), for better and for worse. During the bad times, companies like ORAN can better weather the storm. But during good times, utility firms typically don’t catch as much momentum as cyclical stocks.
This dynamic is on full display for 2017. While several French stocks have registered double-digit gains by the end of the first quarter, ORAN is under 1%. Shares are struggling to break through a horizontal consolidation channel. In fact, ORAN stock really hasn’t moved since the spring of 2014. Thus, an inflection point is at play here. Either ORAN is going to explode skyward, or it faces the risk of a terrible crash.
I’m inclined to believe the former. Overall, President Trump and Brexit were positive catalysts for the American and British economy, respectively. The world certainly did not end just because conservatives scored political victories. If anything, people are responding positively to strong leadership based on protecting sovereign interests.
Furthermore, ORAN has exciting developments down the pipeline. Key among them is an aggressive push into Africa. European telecom markets are saturated and highly competitive. Africa, as a frontier market, offers multiple opportunities. Additionally, African consumers are steadily buying up smartphones, thus requiring better telecom services.
Against the French elections, ORAN may be one of the more immune investments. It’s unlikely to have much downside risk regardless of the results. However, the upside potential is huge due to its acquisitive posture.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
