Value companies for a new age
After a strong initial week, global stock indices returned zero this month. At the same time, the krona strengthened against most other currencies and the global index was down -0.5 percent in SEK.
Uncertainty about the economy, inflation and when societies will be able to open up for real were all questions that contributed to increased concern. Everyone agrees that the economy is currently very strong and that this has affected short-term inflation, but there are many different forecasts about how these crucial drivers will develop in the long run.
The best-performing sectors in the portfolio in May were defensives like communications services and healthcare. We saw strong contributions from companies such as CVS (+13.1%), Novo Nordisk (+6.5%), Nintendo (+8.4%) and Deutsche Telekom (+6.5%). CVS reported quarterly figures that exceeded market expectations, with profits up 8.9 percent compared to the same quarter last year. The company, one of the largest operators of vaccination centres in the United States, also raised its full-year forecast by 2 percent. Nintendo continues to show strength, and its Nintendo Switch gaming console sold 29 million units in the last 12 months. The company increased its profit by 82 percent, and although this was driven by the past year’s abnormally high “home consumption”, the valuation at 18 times earnings must be considered very attractive.
Many investors have noted the high valuations of young IT companies. Something that many have missed, however, is that several of the established market leaders today have become attractively priced value companies. Nintendo, Cisco Systems and Alphabet (Google’s parent company) are good examples. If we look at Alphabet (Google), for example, it continues to have strong growth, huge net cash and minimal economic sensitivity, while at the same time trading only at 24 times earnings. IT-related value companies like these today account for about 20 percent of the portfolio allocation and we have allocations of similar size to healthcare and groceries, two other sectors where we find many attractively valued quality companies with low cyclical sensitivity.