Right after the relatively moist New Year's Eve, me and my friend TV decided to become investors. We decided to start saving monthly to the stocks of our own choice on 9th of January. The strategy was to save in practice the worth of 1 pack of cigarettes per day. As this totals roughly 5€ per day, the monthly amount saved to the stocks was approximately 150€.
The competition is now ended and it is time to evaluate the profits and to choose the winner. It is also a good checkpoint for us to evaluate our portfolios' 6-month return. But before that, we'd like to present our portfolios, strategies and reasons for picking the shares that we did.
Portfolio SW
SW: My strategy
was plain and simple by few rules of my own. The basic idea is to invest in
firms with a high dividend-yield and a moderate valuation. Few rules of my own
were to invest only for the firms that I know extremely well and whose business
is familiar to me either through visits to the headquarters or regularly
followed news feed. The aim was to diversify my portfolio efficiently and with
equal weights to different industries and from Europe and outside Europe.
Tesla Motors Inc.
But first, every portfolio
needs a one stock from pure emotion. That stock for me is Tesla Motors Inc.
Perhaps mesmerized by the stories of Elon Musk and the future of the electric
car, I see a huge potential in the firm. A company which was told to never make
it to produce or sell electric cars at all has developed a brand among petrol
heads and consumers that we haven’t seen before; all without marketing of what
so ever. Owning and buying a Tesla nowadays is a statement emphasizing green
values and entering to the future.
The risk is the firm hasn’t
actually made any profits and the stock has been soaring like hell for the
whole year. Tesla might be a tech-bubble. All the expectations are on the
cheaper Model 3 that will come to production and the value of the stock has
been soaring for this reason. Model 3 might be a perfect ten, but there are
concerns concerning the production of the car itself. Is it produced fast
enough with quality to meet the demand and will it hurt the sales of Model S
and Model X too much? Nevertheless, I believe that the investments on the
battery-technologies and solar might pay off in the long-run. You just can’t
value Tesla as a car company.
Nordea Bank AB
The biggest bank in
Scandinavia is known for one thing: Dividends. The current Chairman of the Board,
Björn “Nalle” Wahlroos is known to share all the extra wealth with the
investors. The numbers tell it all: The average dividend-yield of Nordea has
been over 4 %!
Even though the
dividend-yield is high, the current valuation is well below the industry
average, with a P/E-value of 11,71. Also the heavy investments in digital
banking could decrease costs of the bank, increase competitiveness in the
sector and to ensure the current position of Nordea in Europe. The conditions
to keep the current dividend-yield and to achieve growth are more than good,
even though Nordea exposes to the basic risks in credits and liquidity in case
of a financial crisis.
Nokia Oyj
You just can’t be a Finnish
investor without owning this stock. After the acquisition by Microsoft led
Nokia to sell all its mobile phone manufacturing away from Finland, the crown
jewel of Finnish information technology has slowly waned away. Still Nokia is
considered as one of the leaders globally in information technology.
However, nowadays the future
for Nokia seems a bit brighter. The firm is going through massive investments
for telecommunications and especially 5G-technology. Even though Nokia isn’t
going to sell as much phones as in the start of the century, the knowhow is
extremely intense inside this firm and I honestly believe that the investments
to 5G-technology for instance will start to pay off during 2018-2019.
Capman
My another
pick from the financial sector is a Scandinavian wealth-management group Capman.
The company started to pay dividends early this year, which has raised interest
among investors. The firm has managed to seek growth and to cut costs and give
positive signals to the stock market. The stock can be considered to be
relatively undervalued at the moment, because the P/E-ratio is 12 and the
dividend-yield over 5 %.
Wal-Mart Stores Inc.
One of the
biggest firms in the planet offers a dividend-aristocrat from the United
States. Wal-Mart has been raising its dividend for 44 years in a row! Even
though the challenges in retail business are to be seen, Wal-Mart has been
aggressively investing in e-commerce to compete against Amazon.com Inc. The
company has managed to create competitiveness from its chain and by its own
logistics. Currently the company trades with a P/E of 17,48, dividend-yield of
2,7 % and most of all, a debt-to-equity ratio of 0,54.
The risk
with Wal-Mart is Amazon.com. After Amazon acquired Whole Foods Inc, investors
around the world scared that this would be the end of the retail. Similiarly
Warren Buffet sold almost all of his stakes in Wal-Mart earlier this year. But
I don’t think so. I think the role of retail is going to change significanlt,
but retail stores aren’t going to disappear anytime soon. People still want to
see the product and try it out before buying it online, for instance. Another
point is that currently the customer segments of Wal-Mart and Amazon are a bit
different in terms of age and income, for instance.
Johnson&Johnson
Another
dividend-aristocrat offers a relatively safe, diversified return to my
portfolio. American medical giant Johnson&Johnson has also been able to
increase steadily its dividend-yield during the years and the value of the
stock has been going steadily up without any bigger plunges or surprises. The
balance sheet is extremely strong so the company has good conditions to keep
the growth in the future as well. I’d like to call this the safe “human sector”
of my portfolio.
Outokumpu Oyj
Outokumpu
is the global leader in the production of stainless steel and is the only
steel-company in the world that’s solvent with its own ferrochrome. This also
introduces a risk for the company, since the revenues are extremely dependent
on the market price of commodities and ferrochrome.
Company is
clearly undervalued compared to the sector, propably because of the amount of
risk in this stock. The stock has waned for a while but signs have been seen
that Outokumpu would start to be profitable again after the years of misery.
Outokumpu hasn’t used its losses in taxing and I believe that the cash-flows
are increasing significantly for the next couple of years. There are even hopes
in the market that Outokumpu would start to pay over 3 % dividends again
anytime soon. Tesla and Outokumpu are the “lottery-stocks” in my portfolio.
Kone Oyj
Another
global leader in its industry is the Finnish manufacturer of elevators, Kone.
Kone has been famous for increasing its value over the years with aggressive
acquisitions and it has also had a high-dividend-yield. The truth is that the
company is trading with a premium compared to the competitors, but the knowhow
of making business and seeking growth is very strong in Kone. The
dividend-yield of 3,4 % also attracts competitors and the firm is in an
excellent condition to pay similar dividends also in the future.
Kone made a
significant drop in value earlier this year, which offered me a chance to get
relatively cheap Kone-stocks to my portfolio. Even I consider the stock as a
safe choice, the risk comes with China. We are not quite sure yet how
investments the Chinese market will affect the revenues of Kone. Only time will
show.
Telia AB
My final pick for my
portfolio is a Swedish mobile network provider, Telia. With a P/E-ratio of 13
and a dividend-yield of over 5 %. The immense amount of dividends to be paid
for any firm is considered as a risk, but investments that Telia is going
through at the moment are going to increase the efficiency and profitability. The
stock offers steady profitability, low-risk and a decent dividend-yield for my
portfolio.
Portfolio TV
As I’m
writing this I’m enjoying an amazing cup of blueberry juice on a flight
operated none other than Finnair. This company holds a special place in my
heart as I fly for business several times every quarter and it always gets me from point A to point B
with ease and believe me, in comparison to after flying on some airlines in the
states they treat me like royalty. This would be almost everything I’m looking
for in the companies I invest in: innovation, great customer service and
sustainability. Funnily enough it’s not in my portfolio mainly because of airlines’
low profitability.
However,
getting to the companies that I do own. They were picked mostly using
fundamentals. I aim to understand the core function of the business and the
factors that drive their growth. This in addition to providing services in
modern megatrends and a steadily growing EPS allowing for increasing dividends
is what intrigues me. Now none of the companies in my portfolio are exactly
cheap but that is just the way it is in this market and since we’re putting in
even amounts every month prices are bound to average down at some point. I
cannot tell the future so the best way is to just keep rolling.
Sampo Oyj
Sampo was
on the top of my pick, the cornerstone of the portfolio and the anchor keeping
it steady. As SW already mentioned the inspirational “Nalle” Wahlroos is known
for his generous creation of shareholder value. Now take that and combine it
with his right hand Kari Stadigh and you have yourself a prime example of great
leadership doing everything they can to keep the machine running smoothly. In
addition, since Sampo owns large Nordic insurance companies like If and a third of its value is held in
shares of Nordea Bank AB it is a dividend churning machine.
Neste Oyj
Neste
appeals to the environmentalist side of me as they are heavily investing in
biodiesel. A good step towards a greener future. They’re heavily invested in Europe
and USA and even with the Trump administration cracking down on any kind of
innovation I believe they have what it takes.
Kone Oyj
Kone is one
of the companies that I have that are riding on one of the megatrends of our
time. That is the urbanisation of the world. Definitely a solid company and it
feels good seeing that logo in elevators halfway across the globe. Kone is
another heavy hitter in my portfolio with most revenue coming from china giving
diversification away from the Nordics.
Verkkokauppa.com
Now this
one was a new one even for me as they only listed onto First North Finland in
2016. However, I have been purchasing my electronics from verkkokauppa.com for
as long as I can remember. This is another company riding on changes as more
consumers flock online to make purchases. Verkkokauppa.com has had a flying
start and aim to grow aggressively in the next few years. The dividend stream
is pretty light at 2.4% at purchase price but I will accept this in exchange
for growth following recent heavy investments into new spaces.¨
Nokian Renkaat
Nokian
Renkaat has had a rough few years with their main market in Russia tanking but
now there are finally signs of improvement as car sales are increasing. Despite
the troubles they had they still managed to keep an increasing dividend stream
through the hard times showing the strength the company has. The company is
investing heavily in new factories following increased demand and the brand is
strong among specialty tires giving Nokian Renkaat a competitive edge in the
market.
The rest
The rest of
the companies in my portfolio fall under one or more of the criteria that I
have elaborated on with the previous ones. Each one, however, was picked based
on quality of the business and for the moment I won’t
concern myself with fluctuations in prices. “Steady does it” is the word.
And the results are in......
after declaring the winner in the local pub, the loser had to offer a pint for the winner. The winner was Portfolio TV with a 6 month return of 2,9 % at this point. Portfolio SW had a return of 1,7 %. Even though the strategies were in somewhat similar, we managed to get some deviation between the two portfolios with our picks.
What's next? The monthly investing still goes on with these portfolios. What do you think about these portfolios and their 6 month return? Feel free to comment below.
Text: SW & TV
