High yield, buybacks, and weaker USD are good for H&M
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.
H&M (in SEK), a daily one-year share price chart
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
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
This information is neither an investment advice nor an investment or investment strategy recommendation, but advertisement. The complete information on the trading products (securities) mentioned herein, in particular the structure and risks associated with an investment, are described in the base prospectus, together with any supplements, as well as the final terms. The base prospectus and final terms constitute the solely binding sales documents for the securities and are available under the product links. It is recommended that potential investors read these documents before making any investment decision. The documents and the key information document are published on the website of the issuer, Vontobel Financial Products GmbH, Bockenheimer Landstrasse 24, 60323 Frankfurt am Main, Germany, on prospectus.vontobel.com and are available from the issuer free of charge. The approval of the prospectus should not be understood as an endorsement of the securities. The securities are products that are not simple and may be difficult to understand. This information includes or relates to figures of past performance. Past performance is not a reliable indicator of future results.