Investment Idea

High yield, buybacks, and weaker USD are good for H&M

Carlsquare Vontobel.jpg
01/11/2022 | 2 min read

The past month has been marked by a recovery in industrial stocks in Europe and the US stock exchanges. We may enter a consolidation phase, favouring stocks with high, stable dividends. One such stock is H&M, where the recent rebound in USD should imply an improved result.

There has been robust momentum for industrial stocks on the European exchanges (Paris, Frankfurt, and Stockholm), but also the Dow Jones index in the US. Meanwhile, the Nasdaq has had a more challenging time recovering. The rising interest rate trend in the US is hampering the valuation of growth stocks.

The outcome in the Q3 2022 report has been good, with about 70% better results from the S&P500 companies, while the corresponding figure for the OMXSPI is about 60% better than expected. However, the margin by which US companies have beaten analysts' earnings expectations has been limited to around 2%, historically low. Corporate guidance for Q4 2022 is also predominantly negative. We are heading into an economic slowdown; the question is whether it will be a recession or not.

Significant stock indices performance in one week, one month and this year


Another trend is that companies are starting to lay off staff to bring profitability up to previous levels. As employment declines, central banks, with the Fed in the front, may start approaching the end of their rate-hike cycle. Some indication may be given on Friday, 4 November, when US Non-Farm Payrolls are released. Consensus estimates are at 200 thousand additional jobs in October, compared to 265 thousand new jobs in September. 

The USD has started to decline from high levels. One company that benefits from a weaker USD due to lower purchasing costs is H&M. The company only earns around 15% of its revenues from the United States. Meanwhile, the USD is H&Ms most crucial currency for purchasing goods, together with the EUR. With a dividend of SEK 6:50 per share, the H&M share yields about 5.8% at the current price level. This is almost comparable to a yield on an investment-grade bond. H&M also buys back its shares according to a buyback program. Last week, the company bought back 1.27 million H&M shares from the market.

All these factors should support the H&M share at current, historically low-price levels. The main risk for further share price decline is linked to the European retail demand being relatively weak.

SEK/USD, one-year-chart

Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.

H&M (in SEK), a daily one-year share price chart

Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.

The H&M share has risen since it bottomed at just below SEK 100 on 29 September. Should the H&M share continue its way up, resistance is encountered at price levels, first around SEK 117 per and then around SEK 124.

H&M (in SEK), a weekly five-year share price chart

Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.

The full name for abbreviations used in the previous text:

EMA 9: 9-day exponential moving average

Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers.

MA20: 20-day moving average

MA50: 50-day moving average

MA100: 100-day moving average

MA200: 200-day moving average

MACD: Moving average convergence divergence


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