Blecher: Swedish value stocks are attractive

Exchanges in Stockholm, the US and elsewhere show record highs while the pessimists screech Brexit, Trump and recession. The normally grisly October was a strong market month. Stockholm rose a couple of percent, and several of our companies significantly more, writes Simon Blecher in his monthly report.

Third-quarter reports showed a clear economic slowdown, but margins held up again. This means that profits are standing ground and valuations do not look bad. Exchange rates have certainly helped, but Swedish companies are still phenomenal at maintaining profitability.

Many wonder why the market is rising (especially cyclical stocks) as the economy weakens, but they are missing the fact that the stock market has been worried about the economy since 2017 and companies like Sandvik, SKF and Volvo are traded at the same prices as 2007, even though debt has now turned into cash for two of them (!).

Rather, the market is beginning to speculate that the economy will soon bottom out and, if there is no recession in the near term but only a classic downturn, there remains upside in the stock exchange.

Holmen stood out with its large revaluation of forest assets, but the price is still low and this means the company – despite the gains – is listed with a large discount to net assets, something that, for example, does not apply to most of the stock exchange’s property companies.

NCC was disappointing, but this is the fourth consecutive report without impairments and it is deliberately lowering the risk in the companies by reporting more conservatively. The market is ignoring this and instead focusing on the equity ratio, but is forgetting that the head office and NCC Roads will soon be sold, and then the effect will be the opposite.

The stock market can quickly lose a percent on a crazy tweet or unexpected political event. But with the Stockholm exchange, assuming unchanged profits and a normal rate of return, Swedish value stocks actually seem quite attractive, especially for long-term investors.

Carnegie Sverigefond rose 4.8 percent and is up 30.2 percent so far this year.

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Carnegie Sverigefond invests in listed Swedish equities and contains the country’s best and most stable companies. We invest long-term in value companies with sustainable businesses, strong balance sheets and attractive...

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