Following a strong Q2 for our top picks, is it time to cash in before a hard winter? Or should we take advantage of share price falls to hoover up undervalued names? Analysing demand, cost and pricing for all our coverage, we advise a more selective approach from here. The going is getting tougher YTD demand has been relatively robust and price increases have largely offset inflation, maintaining EBITDA levels despite margin decline. This led to better-than-expected Q2 numbers, with 60% of the companies surprising on the upside. However, leading indicators like consumer confidence, as well as further increases in energy costs, could impact both demand and the labour market in coming quarters. Additionally, and despite its low dependence on Russian gas, vs other big European countries Spain has a poor record on managing inflation. In good shape to fend off interest rate risk Spanish Mid Caps have significantly reduced their leverage compared to the previous crisis. We see almost all the companies as well prepared, with a majority of companies with fixed rates or hedged floating rates, and limited non-EUR exposure. Only Melia, needing asset disposals, and Tecnicas, impacted by limited FCF generation, could see some weakness. Additionally, exporters (Prosegur, Cash, Fluidra, Viscofan, CIE Automotive) should benefit in this environment. Time to take a stand Our 2 strategies (Defensive and Mid-term) have outperformed European Mid Caps by close to 20% in the last 3 months. While tempted to become more cyclical-biased given the sharp contraction of some names, the uncertain context obliges us to be picky. We simplify our previous lists into one, featuring Viscofan (growth and pricing power), Applus (earnings momentum, disposals), Gestamp (recovery of LV production) and Prosegur Cash (top-line acceleration, positive margin mix). We also add recently upgraded Rovi (heavily penalised, strong mid-term catalyst). We remove Logista (strong performance),...