The Great Portfolio Race

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