‘The Magnificent 7’ Croatian Stocks Leave American Stars in the Dust

Those who decided to stay ‘at home’ this year, in a stock market sense, made a far wiser decision than those who chose to try their luck in the most interesting global stock market for years, the American one. However, the nine-month results recently published by Croatian companies listed on the stock exchange call for caution, according to financial analysts. The tone in the markets is currently determined by movements on Wall Street, which is in a rather pessimistic mood.

The local stock indices are under pressure as the technology sector is facing a sell-off due to investors’ fears that stock prices in that sector are too high. As is well known, stock prices of technology companies have been rising sharply for some time, thanks to the euphoria surrounding the development of artificial intelligence, which is the main reason for the record levels of stock indices. An additional burden on the market is the uncertainty due to the fact that federal agencies are still not operational, so there are no statistical reports on economic developments.

Realizing Gains

Compared to the record level recorded at the end of October, the S&P 500 index has lost more than three percent of its value so far, dropping to the current 6680 points. The technology Nasdaq has fared even worse, sliding more than five percent from its record level to 22,760 points. However, the current correction should be viewed in the context of simple profit-taking from previous gains, and the reason for the sell-off has been found in stretched stock valuations, which have been more or less equally stretched for years.

Moreover, the sell-off of American stocks has no basis in the business results of companies. So far, around 420 companies from the S&P 500 index have published reports, with about 83 percent achieving higher profits than expected. As a result, analysts in a Reuters survey now estimate that the earnings of companies in the S&P 500 index rose 17 percent in the third quarter compared to the same period last year, while at the beginning of the financial reporting season, they expected growth of less than nine percent.

When all is said and done, European (Croatian) investors in American stocks have little reason to be happy, at least regarding this stock market year. The S&P 500 has strengthened more than 13 percent this year, while the Nasdaq is up just under 19 percent. Seemingly quite a solid result, European investors need to adjust for the exchange rate difference, which significantly reduces the real profit. Namely, the euro has strengthened against the dollar by almost 12 percent this year.

Four Modest Results

In such circumstances, only a part of the globally most popular seven stocks, the famous ‘Magnificent Seven’ technology stocks, offered somewhat better returns. Even after the current decline, the value of Alphabet’s stock is up 47 percent, Nvidia is up 37 percent, while Microsoft’s stock is up 18 percent. However, the rest of this elite group has brought far more modest, single-digit returns – Amazon is up nine percent, Apple eight, Tesla six, and Meta just four percent.

As is often the case, the sell-off in the American market quickly spilled over to Asian and European exchanges, and at this moment, the Zagreb Stock Exchange is not immune to global selling pressure. With the exception of last Friday, October 31, when a slight increase of 0.2 percent was recorded, the CROBEX index has been on a downward trajectory since October 27. In that negative streak, it has lost 2.5 percent, dropping to 3745 points.

However, besides the ‘import’ of negative sentiment, the current decline in Croatian stock prices has its local reasons. Financial analyst at Erste Bank, Davor Špoljar, says that after two very strong quarters in the first half of the year for the companies he monitors, marked by double-digit growth rates in revenue and EBITDA and results above Erste’s analysts’ expectations, a slowdown was recorded in the last quarter.

– Average growth rates in revenue and profitability have fallen to single-digit values, which represents a significant slowdown and is below our forecasts. In the hospitality sector, this is understandable, given the high base from the previous season and expectations that greater growth will mainly be achievable in the pre-season and post-season. However, surprises are present in other sectors as well – explains Špoljar. Most results have not left investors indifferent, adds Špoljar, and the number of results below expectations is the highest in the last few years.

– This is confirmed by reactions in the stock market, where stock indices have recorded their seventh decline in eight trading days at the time of writing. Some of these unfavorable results are likely temporary, a consequence of weather delays in deliveries that can be compensated for in the remainder of the year, which only raises expectations for the final quarter – believes Špoljar.

Đuro as a Leader

Despite this, the CROBEX is recording a very good 17 percent for this year, approximately the same as the Nasdaq. However, while the focus in America is on technology stocks, in Croatia, industrial stocks continue to bring the best returns convincingly. And these are such returns that investors in the American ‘Magnificent Seven’ can only dream of this year.

Within the CROBEX, in this Croatian version of the ‘Magnificent Seven’ stocks, Đuro Đaković stands out, whose stock has jumped 317 percent this year and was trading at 65 euros on Friday. The reason for such growth is speculation that the company from Slavonski Brod will be part of the European armament trend. A very nice 130 percent price increase was recorded for Dalekovod’s stock, for which one currently needs to pay 8.5 euros, while AD Plastik has doubled its value.

Stocks from the Končar Group – the convincing stars of the domestic market for the last three years – have also proven to be a better choice this year than American technology stars. The regular stock of Končar-Distribution and Special Transformers has brought an additional 71 percent profit to its owners this year, while Končar-Elektroindustrija, with a current price of 640 euros, is up 44 percent compared to the end of last year. Among stocks with more pronounced growth, the domestic IT leader, Span, should also be highlighted, whose price of 64.60 euros has increased by 46 percent. The seventh star of the domestic stock market is Adris, with a price jump of 45.5 percent.

When asked how likely it is that the trend of growth in Croatian stocks will experience a fourth consecutive year, Davor Špoljar says that the domestic capital market this year has mainly been supported by the industrial and tourism sectors, and the high bar set by results and stock prices requires the inclusion of other sectors for the continuation of positive trends in the market.