Sandvik Doing Well Through The Slowdown, But The Price Already Reflects A Recovery

Short-cycle stocks by and large did well in the fourth quarter, with investors buying in ahead of an expected return to growth in the second half of 2020. Sandvik (OTCPK:SDVKY) has gone along for that ride, and has also outperformed the broader industrial group since my last article – rising more than 10% and holding that through a fourth quarter earnings report that still showed signs of weakness.

The confidence expressed by Sandvik’s management on the call that short-cycle markets were bottoming certainly won’t hurt the investment case, but I’d keep an eye on economic indicators in Europe and the U.S. all the same – there’s been more weakness than expected to close 2019 and start 2020. While it hasn’t dented the second-half rebound thesis yet, that recovery is already reflected in the multiples.

Sandvik shares already trade near their one-year (and five-year) high, so it’s not like the impending recovery has been ignored in the valuation. I like Sandvik, and I do still see some upside on an EV/EBITDA basis, but the risk/reward doesn’t seem overly skewed in investors’ favor and this would be a name where I’d still rather wait in the hopes of another sector-wide pullback.

Click the link below to continue:
Sandvik Doing Well Through The Slowdown, But The Price Already Reflects A Recovery