#70 World's best stocks - Ep.6

Special Sweden Edition!

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Welcome to episode 6 of the “World’s best stocks”. As for the previous episodes, I used the Finchat (Affiliate Link) screener to find the best companies.

This time, I’m focusing on Swedish companies. Beyond Spotify and H&M, which I’ve already analyzed in detail here on Substack, I set out to discover other exciting businesses from this great country. Sweden has a rich history of producing globally successful companies, and I’m curious to see what else its stock market has to offer. Let’s dive in and explore some of the hidden gems and standout performers from this remarkable market.

#1 Evolution AB

I already covered Evolution AB in my first “World’s Best Stocks” post, so I won’t repeat everything here—feel free to check out the post via this link. Since then, the stock has declined slightly and is now trading at a 12.27 NTM P/E ratio, which strikes me as undervalued. There’s not much more to add at this point, as the fundamentals remain solid, and the current valuation only strengthens its appeal. A compelling opportunity for long-term investors.

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#2 Atlas Copco AB

• ROIC 5Y Average = 22.46%

• Revenue 5Y CAGR = 11.55%

• Diluted EPS before extra items 5Y CAGR = 10.48%

• Net Debt/EBITDA = 0.33

• EPS Forward 2Y CAGR = 5.76%

• Market Cap = $74 billion

• Total Return last 5Y = 104%

• Forward P/E = 27.09

Atlas Copco is a Swedish multinational industrial company, founded in 1873 and headquartered in Stockholm, that specializes in innovative and sustainable industrial solutions. The company provides a wide range of products, including compressors, vacuum solutions, generators, power tools, and assembly systems, serving industries such as manufacturing, construction, and mining. Known for its focus on innovation, Atlas Copco invests heavily in research and development to create energy-efficient and high-performing technologies. It operates in more than 180 countries, with a decentralized organizational structure that emphasizes close customer relationships and localized decision-making.

Atlas Copco’s business model focuses on delivering innovative and sustainable solutions through the sale of equipment, services, and aftermarket products. The company generates revenue from four main business areas: Compressor Technique, Vacuum Technique, Industrial Technique, and Power Technique. It emphasizes long-term customer relationships by offering reliable equipment and comprehensive maintenance services, ensuring recurring revenue through service contracts and spare parts. The decentralized structure allows business decisions to be made close to the customer, fostering agility and tailored solutions.

First thoughts

Without delving deeply into the specific industries Atlas Copco operates in, it is evident that the company holds a dominant position in its areas of expertise. Coupled with strong financial metrics, it’s clear that Atlas Copco is a well-run business with effective management. However, from a valuation standpoint, the company appears quite expensive. A forward P/E ratio of 27 for a machinery industry company seems high, even though it remains slightly below the historic average of 28. This valuation raises questions about whether the premium is justified based on the company’s growth prospects and competitive edge.

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#3 Lifco AB

• ROIC 5Y Average = 10.69%

• Revenue 5Y CAGR = 13.42%

• Diluted EPS before extra items 5Y CAGR = 16.44%

• Net Debt/EBITDA = 1.45

• EPS Forward 2Y CAGR = 7.03%

• Market Cap = $13 billion

• Total Return last 5Y = 184%

• Forward P/E = 37.11

Lifco AB is a Swedish industrial group specializing in acquiring and developing market-leading niche businesses with a focus on long-term growth and profitability. Founded in 1946 and headquartered in Enköping, Sweden, the company operates in three main business areas: Dental, Demolition & Tools, and Systems Solutions. Lifco follows a decentralized business model, allowing its subsidiaries to operate independently while benefiting from the group's financial stability and strategic guidance. Known for its disciplined acquisition strategy, Lifco focuses on acquiring small to medium-sized companies with strong market positions and stable cash flows. The company prioritizes profitability and sustainability, maintaining a diversified portfolio across multiple industries and regions.

First thoughts

Lifco’s business model is fascinating, as this serial acquirer focuses exclusively on acquiring small and medium-sized businesses with strong market positions. The company’s track record suggests that its approach is highly effective, as reflected in its consistent growth and profitability. However, this quality comes with a premium in terms of valuation. While each acquired business contributes to growth and profitability, Lifco’s primary driver of shareholder value remains further acquisitions, which inherently carry risks, such as overpaying or underperformance of the acquired businesses. From my perspective, the stock appears overpriced at its current valuation, given these underlying risks.

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#4 Investor AB

• ROIC 5Y Average = 15.9%

• Diluted EPS before extra items 5Y CAGR = 55.66%

• Market Cap = $82 billion

• Total Return last 5Y = 156%

Investor AB is a leading Swedish investment company founded in 1916 by the Wallenberg family, one of Europe's most prominent industrial dynasties. It serves as a long-term owner of high-quality companies, including major holdings in firms like Atlas Copco, SEB, ABB, and Ericsson. The company operates through two main segments: Listed Companies, where it holds substantial stakes in publicly traded firms, and Patricia Industries, which focuses on wholly owned subsidiaries and private equity investments. Investor AB emphasizes active ownership, leveraging its expertise and influence to drive value creation and sustainable growth in its portfolio companies. Headquartered in Stockholm, it is one of Sweden's most influential financial institutions, with a strong commitment to innovation, sustainability, and long-term value generation.

First thoughts

Investor AB is undoubtedly an intriguing company with a unique position in the investing world, frequently discussed within the investing community. Its business model shares similarities with Lifco, particularly in terms of portfolio management, but key differences include its focus on larger entities and active involvement in strategic decision-making for its holdings. I’ve chosen not to present specific financial figures here, as they are more confusing than helpful for Investor AB. While there is likely a sophisticated approach to valuing Investor AB, it’s not something I find compelling to pursue due to the many uncertainties surrounding its holdings and its internally calculated “reported NAV.” This figure is derived from Investor AB’s own assessments of fair value for unlisted businesses, which adds a layer of subjectivity, leading me to place this company firmly in the “too hard” basket, following Charlie Munger’s wisdom.

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Disclaimer: The information provided in this publication is for educational and informational purposes only and does not constitute financial advice. The content is solely reflective of my personal views and opinions based on my research and is not intended to be used as a basis for investment decisions. While every effort is made to ensure that the information is accurate and up-to-date, the writer makes no representations as to the accuracy, completeness, suitability, or validity of any information in this post and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. All readers are advised to conduct their own independent research or consult a professional financial advisor before making any investment decisions. The author is not invested in the mentioned stocks.