Buying tomorrow’s winners today, at low prices
If you want to earn more than the market offers with undervalued stocks, you have to spot future developments early.
Text by Mark van Huisseling
The experts at Genève Invest are what is known as “value investors.” That is, they believe that the market is sometimes not right. Rather, they think that individual stocks and bonds, in the short term, are trading too high or too low. The experts aim to find favorable stocks and bonds in time and then profit from them. In this way, they can earn more money than the average investor. Money that benefits the customers – you, in other words.
If companies are identified that are particularly well-positioned and whose shares are therefore likely to outperform the market, Genève Invest tries to determine how high the profit could be in ten years’ time. The professionals look at growth in the past, one year ago, three, five, ten years ago. The most important key figure is probably the book value per share.
How Genève Invest looks into the future
Looking ten years into the future – that’s ambitious. For this reason, the experts apply a discount to their assumption. They also compare the price-earnings ratio (P/E ratio) at different points in time with a P/E ratio that seems realistic to them. This allows them to decide whether valuations are wholly detached from reality or plausible in terms of returns.
Microsoft, for example: Genève Invest bought a significant position in the technology company in 2013, and some clients have seen 900 percent book gains since then. Is that a bubble? No. Because the P/E ratio is about 32. A rule of thumb says the P/E ratio should be about twice the company’s growth – 16 percent growth is viable for Microsoft. So you can sell the stock, but you don’t have to.
Understanding the stock markets is easy. In hindsight. Genève Invest’s claim is different. Without a crystal ball for a peek into the future, the experts look for those investments for you today that will bring a little more performance tomorrow.
For example Fraport
One of the selection criteria for shares chosen by Genève Invest is a return of around 15 percent a year, over ten years. Of course, not all the securities on which the company focuses perform as strongly. But the experts hope to achieve a clear outperformance, i.e., to be better than the average. For specific quality companies, they are satisfied with 12 percent, but results in the single-digit percentage range do not please them at all. The key is not to miss any momentum but to be cautious when traction might have been lost.
Now is a good time to get involved if you can find the right companies – companies like, in the eyes of the Genève Invest experts, Fraport, the operator of Frankfurt Airport, among others. Its share price has fallen by more than 50% since the beginning of the year. A lot fewer people are flying at the moment because of the pandemic. And that may continue for a while. But sooner or later, vaccines will be produced and distributed that provide protection against Covid-19. Then, at the latest, the need for mobility will increase again. Fraport predicts that they will earn a profit on par with pre-crisis earnings as early as 2023 because of cost-saving measures that have already been taken. Seen in this light, Fraport is the top real estate in the center of Zurich or Munich that you can get today at half the price.