Value investor - what stock are you eyeing?

Stocks
1

I wanted to start a new topic because I haven’t yet found a suitable thread for value investors with a quick glance.

I don’t know how many other value investing enthusiasts there are here, or if people on this forum are looking for the next potential stock rocket. While I personally aim to invest in both strong value companies and promising growth companies, in this market situation I want to play it a bit safe and look for investments specifically in well-priced value companies. Over the past month, all key indices have consistently fallen by 8-10% (OMXH, S&P500, Dow, FTSE100, etc.). The hope, of course, is that in a declining market, good companies with reasonable valuation multiples will gradually start to emerge. For the past four years, I have already dreamed of such a bear market - hopefully, it will continue. My underlying thought is that in such a declining market, it’s good to gradually invest in undervalued quality companies, so one doesn’t lose sleep over a small further dip. Nor does one need to succeed in perfectly timing the markets.

I would like to hear what value stocks you are currently eyeing? I’m looking for stocks where:

  • The company conducts profitable business, but the investor also sees future opportunities in the business.
  • Traditional valuation multiples are attractive, but the investor also accepts higher valuation multiples when considering expectations for business growth or dividend growth. A high dividend yield alone is not enough; it must also be sustainably maintainable at least at the current level.

As an example, I’ll take Nordea (which has, in itself, been discussed quite sufficiently on this forum). I bought it myself a week ago for over eight euros with an 8.4% dividend yield. I haven’t lost much sleep, even though it has fallen to around €7.5. P/E below ten, P/B also below one. Even if significant business growth isn’t visible to the investor, the dividend is hardly at risk for at least the next five years.

As another example, I am eyeing Nokian Tyres. In addition to a nearly 5% dividend yield, this company also offers interesting future prospects. Because of these future opportunities, a value investor might accept a somewhat higher P/E of 17 and P/B of 3.14. I don’t own this yet, and I haven’t made a final decision on where I would buy the stock myself. In any case, it has already fallen to figures from three years ago.

I would be happy to hear more such suggestions and tips. Especially from the Finnish, European, and North American markets, as I am able to study and analyze their stocks. However, one must know what one is buying.

Another thread about growth investing could also be interesting, but I’ll leave that to others or for a bit later in this bear market. :blush:

4 Likes
2

So, boringly stable Finnish stocks like the ones you mentioned, plus e.g., Sampo, Kone, Neste, UPM, Kemira, etc., etc.?

3

At the moment, Harvia comes to mind when looking for a fascinating value company. Cyclically stable business, market leader in its field, highly profitable, strong cash flow, moderate growth prospects, and currently, in my opinion, very attractively priced, P/E around 10 (next year), dividend yield already over 6%. The share price has fallen a bit in recent days mainly due to the dividend going ex-dividend and the general market decline. It is currently in my and my son’s portfolio. Just such a boring and safe dividend machine for the portfolio.

I haven’t bought Nordea. Nokian Tyres (Nokian Renkaat) also fascinates me, but I haven’t pressed the buy button, just been keeping an eye on it for now.

6 Likes
4

In this context, I’m also thinking of Harvia, which was brought up earlier with excellent justifications. It’s a fantastic buy-and-hold stock, and its current share price is cheap relative to the company’s true value.

Another value company that isn’t often mentioned is Valmet.

3 Likes
5

A small refinement to my text above: compared to such a make-to-order product manufacturing, it’s very much a counter-cyclical business. During the financial crisis, revenue probably dropped by 10% in 2009, meaning that stoves sell quite well even in bad times (due to replacement demand). Regarding profitability; very profitable when compared to competitors.

The company’s goal is to keep the dividend growing, and I do believe that the dividend will rise in the long run. This is due to low investment needs, good cash flow, and a moderately rising profit.

If I hadn’t jumped in yet, I would have at least done so at this point. But it is what it is.

1 Like
6

Harvia’s CEO stated in Inderes’ roast that replacement demand for sauna heaters accounts for 80 percent of heaters sold, meaning the economic downturn and related slowdown in construction do not have such a dramatic impact on the company’s results. Probably due to this defensiveness and its status as a value company, Harvia was also included in Inderes’ top 3 stocks a couple of weeks ago.

1 Like
7

But even replacement demand for this kind of product is quite cyclical. Heaters are probably not bought when they are completely unusable, but rather when people invest in housing and as part of a renovation. That replacement demand is also partly cyclical.

However, it must also be remembered that construction is now focused on apartment living, so the demand for heaters has probably been relatively moderate in relation to construction, so a change in the construction cycle is unlikely to significantly change the demand for heaters.

Long-term trends such as urbanization, decreasing cottage culture, and a shrinking sauna-going population do not bode well for the long term, at least in Finland.

8

On my watchlist, I have Nordea, Olvi, Ilkka, Saga Furs, and JM (Sweden). Olvi and JM are more quality companies that I would be interested in buying if their prices become cheaper; the others are already cheap based on their book value and P/E ratios.

9

Ilkka is indeed cheap. I don’t understand who buys Alma Media directly when Ilkka is also available.

Saga Furs has a considerable political risk, but it is cheap if no significant changes to the business conditions occur in the future. It just has some of the same problems as HKScan. The ownership structure is all wrong.

10

The only problem here is that as it grows, margins might erode somewhat. Currently, they are astronomical compared to competitors. On the other hand, Nokian Tyres approaches the market a bit differently from other companies, so higher margins might even be on a sustainable basis. I’m just a bit concerned about the sustainability of margins during growth. Otherwise, it’s a quite interesting company, and I would certainly buy it cheaper myself :smiley:

11

“It must be remembered, however, that construction is now focused on apartment living, so the demand for sauna heaters has probably been relatively modest in relation to construction, so a change in the construction cycle is unlikely to significantly change the demand for sauna heaters.” It would be nice to see statistics on this, but all the new apartment buildings I’ve visited have had their own sauna, even in studios. No longer just one shared sauna in the basement like before. This actually increases the number of sauna heaters, with urbanization and the decrease in apartment sizes. In addition, sauna bathing in Finland will not decrease or end, but will increase with the increase in leisure time and the rising appreciation of well-being.

1 Like
12

I just threw that out based on my gut feeling, and from what I’ve seen myself, very few small apartments have a sauna. Almost every detached house, on the other hand, has a sauna. My quick conclusion was therefore that the demand for heaters is lower in apartment-style living than in detached house-dominated living.

13

Thanks to Astrix for bringing up Harvia. I’ve somehow initially overlooked the company because I’m looking for a business idea with clear global demand. Okay, okay, there are saunas around the world, of course. And now that I’m taking my first real look at the company, of course, there might be more international demand in the spa sector. In addition, a good thing about these smaller companies is that they are not yet followed by millions of institutions and analysts, so there might be a bit more benefit from market inefficiency in a positive business case.

1 Like
14

It would be nice to hear more detailed justifications.

1 Like
15

Watch the Harvia roast and read the reasons why the company has been raised to Inderes’ top 3, here on Inderes’ website.

1 Like
16

I’m on the happy side =) I have to say that when Harvia was listing, I wasn’t initially that interested myself. But then I got excited when I got to know the company through Inderes. The company has revenue from, for example, Germany; is there a similar number of saunas there as in Finland? Then, for example, Russia, Sweden, and the US are also big target markets.

It’s hard to come up with what could be the biggest or most realistic true risk for the company. As has been stated, this industry is, at least most obviously, protected from various disruptions. Perhaps a strong drop in product demand or a shrinking market comes to mind first. The fact that the market grows by just over 2% annually is also just an estimate. The company has apparently refined its production to be smooth over the years, so I don’t believe internal problems for the company are likely. I also don’t believe any major competitor will enter these markets, because the market is quite small for large companies, and Harvia has already achieved a leading position in this industry.

But a very interesting value company. Not a multibagger.

2 Likes
17

This week, I was waiting to see if Harvia would drop to 4.xx prices. I’ll buy as soon as it drops… or possibly at €5.0 next week anyway.

This week, I emptied some positions because I have very pessimistic expectations regarding the macro situation for the next 6 months… should I still buy? On the other hand, the market’s nerves might lead to a bigger slide at Christmas than now…

1 Like
18

I follow these companies because, with the exception of Saga Furs, they are consistent performers. The difficulty lies in relating company-specific factors to market psychology. I don’t feel like investing under a recession.

Nordea and Ilkka are somewhat boring dividend machines whose value appreciation might come from reduced risks. On the other hand, especially with Nordea, market paranoia could lead to a good buying opportunity in the future. Olvi is a growing quality company, and I see its risk as small. It’s like a crown jewel in a portfolio.

With JM, I’m concerned about the cycle turning and the valuation of balance sheet items. The company hasn’t made a loss in any year for at least 20 years. This year, management has made some peculiar decisions, such as using cash flow to acquire land and building rights in this economic climate, while simultaneously halting the share buyback program. Do the acquisitions suggest that existing assets are not current?

Saga Furs is a wild card. This is the kind of company that could suddenly make €2 EPS due to the small number of shares and cyclicality. Balance sheet item valuation, political risks, and the business model are question marks. It is strongly linked to the financial success of fur farmers through receivables. Q2 2018 “net nets” value per share €10.08.

19

I don’t understand the hype around Harvia. It’s a rather indebted company with very limited growth opportunities. It might be a company that generates good dividend yield, but it’s not cheap even at these prices. Why on earth would Capman have wanted to list Harvia if it saw good development continuing? Now everything has been trimmed almost to the max, and the general market situation has been excellent, so it’s no wonder it seems cheap.

2 Likes
20

@g3235286
In my opinion, Harvia is not as hyped, looking at the share price. Nor does it make it hyped just because I brought up the company here, if that’s what you meant. But, it’s certainly no rocket stock.

The company could fit well into a buy and forget portfolio.