The manufacturing sector is teetering on the edge of a cyclical downturn, according to veteran industry analyst Mattias Holmberg from DNB. In a recent interview with Placera, Holmberg expressed his belief that the volume decline in the sector has been more significant than what is reflected in reported organic growth, primarily due to the price component providing some support. Adjusting for price, the volumes have likely fallen in a manner indicative of an economic slowdown.
Looking ahead to 2025, Holmberg predicts a potential improvement in momentum, especially in the latter half of the year, albeit with significant variations across different end markets. While he refrains from labeling the stock market or the manufacturing sector as either cheap or overvalued, he does see opportunities for selective stock picking in the current landscape.
One such company that catches Holmberg’s eye is Alfa Laval, a leader in heat transfer, separation, and fluid handling. He highlights the strength of the company’s order book and the profitability of its product mix as factors that investors may be overlooking. Despite concerns about the marine cycle, Holmberg remains optimistic about Alfa Laval’s growth prospects, citing the aging of existing vessels and the need for capacity balancing in the market.
Assessing the valuation of Alfa Laval, Holmberg acknowledges that the stock is trading at a slightly higher level than historical norms but considers it reasonable given the company’s positioning in structural trends within the energy transition. With a focus on heat exchangers, Alfa Laval’s global market leadership and strong position in the industry contribute to its attractiveness as an investment opportunity.
Shifting focus to another company, Assa Abloy, Holmberg emphasizes the resilience of the company’s aftermarket sales and the potential for a profitability boost once the European construction sector rebounds. Despite hitting an all-time high earlier in the year, the stock has experienced a slight pullback, prompting Holmberg to refrain from describing it as cheap. However, he sees value in the company’s growth potential, driven by structural trends in the industry.
On the geopolitical front, Holmberg comments on the impact of President Donald Trump’s proposed tariffs on Mexico and Canada, noting that while the tariffs themselves may not justify recent market movements, the broader implications of trade tensions could lead to more significant fluctuations. The automotive industry, heavily reliant on imports from Mexico, stands to be the most affected, potentially leading to cost inflation passed on to consumers.
Delving into the Swedish market, Holmberg identifies Autoliv as a company at risk due to its operations in Mexico. With significant net flows between Mexico and the US, potential tariffs could impact the company’s profitability. However, Holmberg believes Autoliv will be able to mitigate these costs through price adjustments in the short term.
In the trucking sector, Volvo’s ambitious goal of achieving a 25% market share in North America raises questions about the feasibility of such a target. While acknowledging Volvo’s strategic initiatives, Holmberg remains cautious about incorporating such an aggressive market share assumption in his estimates. The potential challenges in maintaining pricing discipline amid competitive pressures pose a greater risk than trade tariffs or geopolitical uncertainties.
In conclusion, Holmberg’s insights offer a nuanced perspective on the manufacturing sector, highlighting opportunities for growth amidst economic headwinds and geopolitical uncertainties. By analyzing individual companies within the industry and considering broader market trends, investors can navigate the current landscape with a focus on long-term value and resilience.