SKF Leveraging The Short-Cycle Recovery, But Short Cycle No Longer In Favor

 

In the year or so since my last write-up on Sweden’s SKF (OTCPK:SKFRY), the shares of this leading manufacturing of bearings, seals, and related products have had a mixed performance. While the shares have outperformed the S&P 500, the performance versus other industrials has been more mixed, with SKF outperforming the larger industrial group until late April, a time since when many shorter-cycle names have made less headway as investors have rotated to longer-cycle names.

Relative to my last update, I like the stronger guidance for long-term margins and I like the recovery we’ve seen in most industrial and auto end markets. I still don’t like the adjusted earnings shenanigans whereby SKF tries to pass off recurring manufacturing restructuring costs as “one-time” costs to ignore, but that’s an “is what it is” situation. I do still see some value in these shares, but I think beat-and-raise quarters are going to be harder to achieve and I think more bearish sentiment towards short-cycle names is likewise a headwind to consider.

 

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SKF Leveraging The Short-Cycle Recovery, But Short Cycle No Longer In Favor