Buying Equinor (safety amid growing instability)

Value and income as markets and politics run hot

I’ve been eyeing this one for a while.

An odd combo of micro, market and macro factors got me to pull the trigger this week.

Here’s what I mean by odd.

Macro

Let’s start with macro. Geopolitics.

To be blunt, the outlook for peace and stability seems to be worsening.

Especially for Europe.

There’s a reason SAAB, which makes fighter jets, is up 30% since Vice President Vance spoke in Germany last month.

And 450% since Russia invaded Ukraine.

In times of war, inflation and oil prices tend to go up. And Equinor is an energy company.

So there’s that.

Markets

At the same time, markets are still running hot.

Despite the dip, the Buffett Index shows a US market that’s still overvalued.

And for Europe, no dip. The Stoxx 600 closed higher for the 10th straight week last week.

In Sweden, where I live, we hit an all-time high.

Mismatch

This is odd.

On one side, I see:

• a worsening geopolitical and macroeconomic outlook

• high risk for US budget shenanigans (deficit spending, DOGE etc.)

• high risk for global tariff and trade wars

On the other side, I see:

• a still-overvalued market in the US

• booming markets in Europe, where storm clouds are forming

These two sides don’t equate.

Something probably has to give.

Micro

Then I see big, stable, low-priced Equinor.

With its long history producing and safeguarding wealth for its shareholders (and country).

I see the steady cash flows to its investors.

Including the Norwegian government and its massive sovereign wealth fund.

I also see an energy industry that offers good value relative to a lot of other industries.

I then see Equinor as favorable vs other major oil company valuations. For example:

• Equinor has a forward P/E under 7 vs 9 for Shell and 15 for Exxon

• Equinor’s EV/EBITDA is 1.7 vs 4 for Shell and 7 for Exxon

In Equinor, I also see:

• impressive average ROE (30%) and ROCE (38%) the past five years

• low debt/equity at 0.7

• a double-digit dividend

• regular share buyback programs, including $5 billion this year

• a share price that has gone lower the past couple years while markets have shot up.

In other words: value in a world with high market valuations.

Income and safety in a world with declining stability.

And I'm not the only one seeing this. Berkshire recently increased its oil holdings too.

Sleep

I don’t love that it’s oil. I don’t want to destroy the environment.

So I very much like to see that Equinor is also at the forefront of the energy transition.

This helps me sleep at night.

But more to the point, we have a car, and we have savings.

I still need and use what Equinor sells, and find value in what Equinor provides as an investment.

In the decades ahead, I’m thinking the world will too.

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Joel Sherwood invests each week and writes about what he buys, learns and earns. He’s a former financial journalist for Dow Jones and The Wall Street Journal, and a current bank employee. He lives in Stockholm, Sweden and started the Sherwood Investment Letter in January 2025. Purchases are not recommendations. Subscribe.