As the stock market fears recession grip and consumers get squeezed, outperforming fund manager Sean Peche bet 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 attractive qualities. The stock, also traded in the US, Germany and Switzerland, is the second largest shareholder in the Ranmore Global Equity Fund, which has outperformed the S&P 500 index in 2023 with a 31% return. Peche noted that Carrefour has increased its revenue over the past few years while maintaining stable inventory levels. The retailer’s total revenue rose from 74.2 billion euros ($80.96 billion) in 2018 to 84.9 billion euros in 2023, according to FactSet data, an increase of 14.4%. He spoke about the company’s technological advancements, saying: “They use technology and AI to increase inventory due to weather forecasting and optimize inventory.” “You have a company that’s trading at six times that, that’s paying a good 5% dividend yield, with a good management team, which we don’t like,” Peche said on CNBC’s Squawk Box Europe on Friday. CA-FR 5Y line However, the stock has declined 23% over the past 12 months, which Peche said is due to investor interest in AI and technology stocks through consumer staples companies. The fund manager also highlighted Carrefour’s growth in its own label products, which now account for almost 40% of its profits. As consumers trade down for more affordable options in difficult economic times, Carrefour benefits, because they earn more on own-label products than on brands. Growth opportunities A potential growth driver for Carrefour is expanding its advertising business, according to Peche. Following other major retailers like Amazon, Tesco and Sainsbury’s, Carrefour monetizes its online platform by allowing brands to pay for prominent product placement. “It’s pure cream when you think about it. It doesn’t cost a lot,” Peche added. Carrefour’s international operations are also seen as promising, with Peche highlighting the company’s operations in Brazil, which he says are returning. The company makes almost half of its money in France and the rest overseas, including almost 15% of its total sales from Brazil. Analysts’ view The consensus price target of all analysts polled by FactSet is 17.35 euros per share, giving the stock a potential upside of 25%. However, not all analysts share Peche’s enthusiasm for Carrefour in the near term. Cedric Lecasble of Stifel pointed out that during the period of high inflation between 2021 and 2023, “the focus is on protecting profitability weighed on competitiveness.” Lecasble notes that while Carrefour has made price investments to stabilize its market share in France, similar decisions in other European markets have put more pressure on profitability. UBS’s Sreedhar Mahamkali 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 euros in adjusted profit at the end of the second half of the economic recovery in Europe, which Mahamkali “prudently” did not anticipate. “It’s true that we model down more modestly in (adjusting profits in the second half),” he added.