Norway's Stock Market Is Significantly Undervalued

PictureOn a cyclically-adjusted P/E basis, Norway's stock market is significantly undervalued, with a ratio of 13 compared to the Nordic average of 20. Moreover, in spite of lower oil prices, consumer spending has been rising in Norway with seasonally adjusted gross domestic product growing by 0.5 percent, up from 0.4 percent in the prior three months according to Statistics Norway. In spite of higher growth and a hold on rates at 1.25 percent, speculation continues to mount of a further rate cut in June since lower oil prices have dragged unemployment to a ten-year high in the country.

While Brent crude oil has been on an upsurge since March to a high of just over $69 per barrel, this has since fallen to the $65-66 range. On the other hand, lower interest rates continue to fuel higher mortgage demand with house prices being almost 8 percent higher in April compared with the same period in 2014. Even though low oil prices have clearly been of concern to Norway's economy, there are some positive signs that growth can continue given a higher rate of consumer spending. From an investor's point of view, does this mean that Norway's stock market may in fact be ripe for a bargain hunt? Given that much of Norway's economy has relied on the export of energy and other natural resources, a drop in commodity prices may make Norway an attractive value proposition compared to other European markets.

When looking at the five most traded companies on the Oslo Bors index by market capitalisation, we see that four of the five companies are up by more than 10 percent since January of this year. In particular, while oil firms Statoil (STL.OL)(STO) and Seadrill (SDRL.OL)(SDRL) are up by 10 to 15 percent, financial services firm DNB (DNB.OL)(DNBHF) is up by over 22 percent. Moreover, two of the three companies trade at a P/E ratio lower than 13:

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Sources: Bloomberg, Yahoo Finance, YCharts

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Corey Gaber 4 years ago Member's comment

I think undervalued stocks are in a downtrend, if you buy for the value, you have to suffer loss and wait for a turnaround.

Derek Snyder 4 years ago Member's comment

And the entire upstream market is different in any way?