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Austria’s AMS was one of many Apple suppliers hit by soft iPhone sales last year. The company, once known as austriamicrosystems , produces 3-D sensors and laser technologies used in smartphones.

The shares (ticker: AMS.Switzerland) have dropped 74% over the past year versus gains of 3.7% for the S&P 500, according to Morningstar data. Both figures include dividends. In February, AMS was forced to cut its first-quarter revenue guidance to $350 million to $390 million, considerably short of the compound annual revenue growth target of 60% for 2016 to 2019 that it reiterated last October. The high end of that estimate ($390 million) is much lower than 2018’s first-quarter revenue of $453 million.

AMS also said its first-quarter operating margin would be in low-single digits, far lower than the 30% company target and down from 17% in the first quarter of 2018.

The big problem is dependence on one customer, Apple (AAPL), which provides about 40% of revenue, according to estimates from Seth Sherwood, an equity analyst at Morningstar.

AMS, however, is actively trying to diversify its revenue streams beyond Apple to focus more on other consumer-goods customers as well as industrial applications such as self-driving automobiles, medicine, and factory operations. The firm says it wants a 40/60 industrial-consumer mix in the long term. That could help reignite interest in the stock, which is valued at $2.4 billion. One example of 3-D’s potential is in augmented-reality equipment to assist surgeons, says Sherwood. “The eye-tracking systems can help you know whether the person is looking in the right place,” he says.

Eventually, that will start showing up in sales.

“We expect AMS’ industrial, medical, and automotive revenue to grow at a midteens average annual pace through 2022,” states a recent report from Morningstar.

Read more: Apple Supplier Stocks Take Another Hit as iPhone Sales Weaken in China

Moving into these markets will hold a number of benefits for AMS beyond diversification. Industrial applications of AMS technology are far stickier than consumer uses such as smartphones. AMS components “won’t immediately be designed out of the product,” as often occurs in the more fickle consumer market, where smartphone makers can easily and quickly switch suppliers, Sherwood says.

The design cycle for automotive/industrial/medical products can take years before it boosts revenue, Sherwood says. For that reason, he says any near-term sales growth will need to show up in consumer growth beyond Apple, such as for use in Android smartphones.

The switch toward the industrial market could also improve profit margins, which will rise from less than 30% in 2018 to 40% by 2022, Morningstar says.

Sherwood says the stock is worth 54 Swiss francs ($54), almost double the recent price. Deutsche Bank has a more modest price target of CHF40, which values the stock at 11 times next year’s earnings, or still at a “30% discount to most relevant peers,” which reflects the dependence on Apple.

Dividends should add 1% to 2% a year in the future. AMS suspended its dividend in 2018 “to focus on strengthening its business position in 2019,” as AMS stated in a recent report.

There are substantial risks in buying AMS. Most cutting-edge technology stocks are volatile, so expect a rocky ride. And it will take a while to lessen its reliance on Apple. As UBS notes, “Near term, we expect that AMS’ share price will be most dependent on the smartphone market.”

However, for those with patience and fortitude, the stock could be a good long-term bet.

Germany spearheads effort with France to reform competition law after Alstom-Siemens veto

Paris and Berlin will this week join forces on efforts to defend Europe’s “technological sovereignty”, Germany’s economy minister has said, in a bid to fight off encroachment from global rivals and shore up EU industry in the wake of the failed Franco-German rail merger between Alstom and Siemens.

Peter Altmaier told the Financial Times that France and Germany wanted to make a joint proposal for a new European industrial strategy, including possible reform of EU competition law.

He said he and his French counterpart Bruno Le Maire had been spurred to action by the European Commission’s move to block the proposed tie-up between Siemens and Alstom, which was aimed at helping the European trainmakers to compete with CRRC, the Chinese railway group.

In an interview, Mr Altmaier, a close ally of Angela Merkel, said he would hold talks with Mr Le Maire in Berlin on Tuesday on how to ensure European companies were better able to compete with international rivals.

“Often European companies are competing globally with US or Asian firms that are very strong in their home markets,” he said. “So Europe should also allow companies to exist and become global players that are big enough to compete effectively.”

Paris and Berlin have been left fuming by Brussels’ refusal to countenance a deal between Siemens and Alstom. In recent days the two countries have emphasised the need to create and foster “European industrial champions” and warned of the risk of Europe ceding its technological supremacy to a rising China.

The challenge to the status quo from the eurozone’s two leading economies is likely to intensify debate across the EU about whether and how the bloc should protect important domestic companies and foster innovation.

Mr Altmaier has led the charge, unveiling a new industrial strategy for Germany this month. He has emerged as the face of Berlin’s growing protectionist backlash against Chinese investment, repeatedly warning of the menace posed to Germany’s future prosperity by China’s growing economic strength.

As part of his new strategy, he said the state should step in to acquire German high-tech companies if they were about to be taken over by state-backed Asian predators. He cited the €4.5bn acquisition of Kuka, Germany’s leading producer of industrial robots, by Chinese appliance-maker Midea in 2016, a deal which raised fears that much of German high-tech knowhow could end up in Chinese hands.

The minister also called for an easing of EU competition law to allow the creation of mega-companies. “It’s indisputable that when you operate in global markets you need to be of a certain size to compete successfully,” he told the FT.

That was particularly the case for companies making planes, lifts in 100-storey buildings “or trains where projects can cost €30bn or more,” he said. “That’s why it’s important that we don’t break up these companies or put obstacles in their path.”

Mr Altmaier was speaking days after Mr Le Maire on February 12 presented a three-point plan that would amount to the biggest shake-up of EU merger rules for 30 years. It included a proposal to give EU national leaders the right to overturn merger decisions by the European Commission, an idea Mr Altmaier said could be a “meaningful step”.

However, some government officials in Berlin oppose the idea, saying it could lead to arbitrary, politically driven decision-making that would diminish the commission’s role.

Mr Altmaier and Mr Le Maire have also both proposed that Brussels should consider a company’s global market share rather than just their position in the national or European market in deciding whether to approve or block a merger.

Mr Altmaier’s new industrial strategy has been fiercely criticised by some German economists. Writing in the FT this week, Christoph Schmidt, chair of the German Council of Economic Experts, described it as “highly interventionist” and criticised the idea of singling out certain “strategically important” companies for protection.

“Among the companies identified are laggards such as Deutsche Bank, leaving the reader at a loss as to why exactly — apart from its name — it should be protected while others are to be left exposed to the forces of competition,” he wrote.

Mr Schmidt said it would be better to “incentivise European companies to be highly competitive and innovative on their own account”, improve education and provide targeted incentives for companies to pursue innovation.

Mr Altmaier said his strategy also included such measures. “It talks about improving the fiscal environment, achieving more affordable energy prices and stabilising social security contributions,” he said. “Of course, cutting red tape and investing more heavily in infrastructure are also very important.”

He also denied a claim by Clemens Fuest, head of the influential Ifo Institute for Economic Research in Munich, that he was seeking to give a “state guarantee” to big companies such as Siemens and Thyssen Krupp that would protect them from break-up or hostile takeovers. “There’s no such guarantee in my strategy,” he said. “That has nothing to do with the free market.”

Mr Altmaier also addressed the issue of Chinese technological company Huawei, which a number of countries have blocked from supplying equipment to their next-generation mobile phone networks amid fears over espionage.

Last month, the German economy ministry said security of the future 5G network and the safety of products offered by telecoms suppliers was “highly relevant” and the government would be “guided” by such concerns in its buildout of the network.

Mr Altmaier said: “The German government does not want to discriminate against any company. But we insist that all products used and installed in Germany meet the highest standards of safety.”

He said Berlin was planning to “check and improve” its safety regulations and ensure that all telecoms equipment complied with them.

He also said Huawei would only be allowed to take part in the buildout of Germany’s 5G network if it provided “assurances” that it would comply with German regulations.

He said the German authorities would also need to ensure that companies such as Huawei were holding to such assurances. “That means that the relevant federal authorities, such as the Federal Office for Information Security, must have the necessary capacity to investigate [whether such promises are being kept],” he said.

Three years ago Bruno Crastes delivered a presentation to bond investors in Miami called “Bye-bye beta, hello alpha” — but the title of the talk could have been: “Bye bye Bill Gross.”

Mr Crastes, a fixed-income investor, may not have the global reputation of “bond king” Mr Gross but, softly softly, he has become one of Europe’s best-performing absolute return managers.

The 53-year-old chief of H2O Asset Management used Mr Gross, the Pimco co-founder, as a case study to show how low interest rates and central-bank asset buying had helped managers. He warned that the bond rally, which turned bond investors into stars and Mr Gross into “the star of stars”, was coming to an end.

He said interest rates were nearing a level where exposure no longer made a difference to performance, and this meant that bond managers had to search harder for returns.

Days before I meet Mr Crastes, the news vindicates his stance: Mr Gross declares that he will retire from the global investment stage, marking a symbolic end to the golden age of bond investing.

Meanwhile, Mr Crastes’ prediction that highly active fixed-income funds would flourish in the new environment has been borne out. The H2O flagship MultiBonds, Allegro, MultiStrategies, Adagio and Moderato funds were among Europe’s best-performing alternative funds last year. The MultiBonds fund, co-managed by Mr Crastes, returned a net 32.9 per cent.

What is behind H2O’s success? “There’s no secret,” says Mr Crastes, as we sip H2O’s own-brand water in his chic office in Mayfair, London.

The Frenchman is relaxed but reluctant to be seen as a sage. He credits H2O’s performance to “hard work”, experience and a “close-knit” team.

Mr Crastes has worked with Vincent Chailley, H2O’s chief investment officer, since the 1990s. They were at Crédit Agricole Asset Management when they pioneered their brand of absolute return investing, a style that replicates hedge fund strategies to provide steady returns to risk-averse investors.

They left CAAM after it merged with Société Générale’s fund arm to become Amundi in 2009 — but have stuck with their formula.

One factor in H2O’s success is its strength in behavioural finance, says Mr Crastes. He believes many managers can analyse facts but few appreciate the value of analysing the perception of facts.

H2O realised this during the eurozone debt crisis in 2011 when Mr Crastes and his team believed in a recovery. They bought European bonds but took a knock when US and Asian investors sold European assets.

The company is not afraid to be out of step, though. Mr Crastes says he is criticised by investors and competitors for relying on the potential for correlations to reverse. Since the financial crisis, bonds and equities have rarely fallen at the same time, prompting droves of fund managers to combine the asset classes to reduce risk.

This was “a great source of performance [but] it started to get challenged in 2016, 2017 and 2018 [when] correlations changed”, says Mr Crastes.

The fact that both bonds and equities fell last year is “one reason why there is so much pain in the market”, he says, alluding to the woes of many absolute return funds.

The worst performers included Aviva Investors’ Multi-Strategy Target Income fund, down 7.6 per cent last year, and Standard Life Aberdeen’s Global Absolute Return Strategies product, which lost 6.4 per cent.

Mr Crastes will not be drawn on why his competitors have done badly. He says H2O’s principles are tolerance, transparency and humility, which are also the characteristics of water, hence the company name.

Some of the blame, he says, is due to the promises made by some funds in marketing literature. Many asset managers piled into the absolute return market after the crisis, hoping to lure investors with high returns in a difficult market. A few got carried away.

The marketing was “sometimes not completely true”. “How can you sell products telling your clients they’ll never be poor?” says Mr Crastes. “Absolute return doesn’t mean you’re up every day. It’s not possible.”

Yves Choueifaty, another former CAAM colleague who is CIO of Tobam, says Mr Crastes is respected for his honesty and willingness to stomach short-term underperformance.

Mr Crastes points to the investors who handed money to H2O in 2011 when the debt crisis was hitting its flagship bond funds. “Tactically it was a good entry point. Since then they [have been] very happy because they made a lot of money.”

He knows, however, that H2O’s performance is not bombproof. In the past, the small size of its funds gave it agility. Now, with €30bn of assets, H2O is wary of its ability to put this money to work by identifying sources of absolute return.

“It’s a great thing if we can deliver alpha without limits, but unfortunately, like everything, it doesn’t come free,” says Mr Crastes.

H2O recently introduced entry fees to try to discourage investor inflows and protect its performance. “Size is the enemy of performance. It’s a lie to say [otherwise],” he says.

The company plans to hire staff and uncover additional sources of performance, but the potential is limited, says Mr Crastes.

He is set to take the company in a new direction, away from his “bye-bye beta, hello alpha” theme. H2O will launch more conventional equity and bond products, including a constrained European bond product, and offer quantitative strategies via Arctic Blue, its systematic trading house.

Mr Crastes denies that H2O is moving away from its origins. “I’m still saying that alpha is superior to beta but you can have good quality beta if it’s done with a bit of alpha.”

Asked what went wrong for Mr Gross, who was managing less than $1bn before announcing his retirement, Mr Crastes says the 74-year-old “stayed too long”.

“At a certain point you have to leave the floor to people who are a bit younger,” he says. So when does Mr Crastes plan to step back? “I’m a Frenchman so I’ll retire at 65,” he says.

Born May 15 1965, Lyon, France

Salary Undisclosed

1986 BA in mathematics, University of Lyon

1988 Actuary qualification from Institut Supérieur de Formation des Actuaires

1988 Proprietary bond trader, Banque Louis Dreyfus

1989-94 Bond portfolio manager; deputy head of fixed income, Indosuez Asset Management

1997 Global fixed-income management head; by this time Indosuez AM was part of Crédit Agricole Asset Management

2005 Chief executive, London, CAAM; continued to manage global bond portfolios; CAAM later became Amundi

2010 Founded H2O Asset Management with Vincent Chailley, a former CAAM colleague

Assets €30bn

Employees 90

Headquarters London

Ownership Subsidiary of Natixis Investment Managers

* Cover story: Investors interested in U.S. cannabis stocks face a number of challenges: Although marijuana is legal for recreational or medical use in many states, it remains illegal under federal law, so cannabis companies—with the exception of those that only sell in Canada such as CGC and TLRY—can’t list on American exchanges; Top contenders in the U.S. market include Acreage Holdings, Green Thumb Industries, MedMen Enterprises, Harvest Health & Recreation, Trulieve Cannabis, iAnthus Capital Holdings, which are pursuing varied strategies, with only Acreage and iAnthus profitable so far.

* Features: 1) The patchwork of marijuana regulation in the U.S. makes it hard for cannabis companies to manage legal issues, but a broader federal reform would result from the States Act, proposed in June 2018, that would exempt cannabis from most federal drug laws in states that have legalized it; 2) Positive on EQIX, COR, IRM, INXN: Barron’s found four leading companies in the data-center sector whose shares look compelling after an industry slowdown that weighed on investor sentiment—the shares are staging a comeback and seem poised for further growth; 3) Positive on Fanuc, ABB, Yaskawa Electric, Kuka, TER: Major robot makers offer investors a good opportunity to gain exposure to a technology that is part of what manufacturing executives say will be the next industrial revolution—and of the five, Teradyne is particularly attractive; 4) Positive on L: The home-improvement company is a $15B conglomerate that “flies under Wall Street’s radar,” and is “a conservatively run, value-oriented company, with decent growth prospects, that trades at a nice discount from its net asset value.”

* Tech Trader: An executive order from Donald Trump banning Huawei Technologies gear in the U.S. would be good for the company’s rivals—including NOK, ERIC, and Samsung Electronics—problematic for foreign telecom operators, and worrisome for U.S.-China trade relations.

* Trader: “The market’s rally has forced investors to rebuild positions they may have sold off during December’s tumble—and they may not be finished just yet,” while hedge funds and risk-controlled portfolios still have little exposure to the market relative to history and retail investors haven’t put much money back in since the downturn; Positive on YETI: Maker of outdoor gear such as coolers, jugs, wine tumblers, and more has low brand recognition, but as more people learn about it, shares could rise by as much as 60%; Cautious on XPO, FDX, UPS, KR, FAST, GWW: As AMZN “eats the economy,” its influence continues to expand, and no sector—from shipping to groceries to industrial distribution—seems safe from its disruption, leaving investors the challenge of finding which industries could benefit from its growth.