Winner and loser stocks May 2019

After the strong initial months of January to April, the stock markets fell in May. The S&P 500 lost around 6.7% and the Nasdaq 100 even lost 9%. By comparison, the losses in the German Dax 30 are still quite modest at minus 5%. In line with the performance of the indices, the losers included many technology stocks from the USA and – the trade war sends its salute – also from China.

The German stocks of Adidas and Bechtle have run strongly against the market. Both are companies that delight their shareholders with long-term profit growth and consequently long-term capital gains and growing dividends.

In the long run Adidas is a very profitable investment

Adidas, Bechtle & Co: still buying shares that out-performed the market?

With winner stocks such as Adidas or Bechtle, you are probably like many other shareholders. You are wondering whether the train has already departed or whether you still need to jump on it. You may also feel a slight distress if you are standing on the sidelines mourning after the lost profits. And then you buy. Mostly spontaneous, which leads to you buying at peak prices.

Finally, the stocks are in our own portfolio and expectations are high. The price rally must continue! You did not buy the stocks as a long-term investment in a company, but because you finally want to get a piece of the cake. You are looking at fast capital gains. Your well-being and woe now depend on the daily ups and downs of the stock market, whereby the yardstick of your well-being is the difference between your purchase price and the current stock price.

If courses fall, it’s a disaster. In your perception, it does matter whether the prices collapse due to a general market downturn or whether the company is underperforming. What counts is the red number in your portfolio. Now the fact that your stock purchase was driven by greed instead of the fundamental prospects of the company backfires.

Prices continue to fall. And since your buying motivation was based on the assumption of fast capital gains, there is no reason to hold on to the stock any longer. Of course, you tell yourself that the stock market may still be turning – you even know in the back of your mind that you can wait out losses. But since you don’t really believe in your stock as a long term investment, your physical limits are weak.

Next, the prices fall, and finally you throw the stocks on the market. Of course, when the prices are down.

And this is what Bechtle’s long-term earnings and dividends growth look like:

Bechtle’s long-term earnings and dividends growth

If you see your stock as a long-term investment, you will not sell your stock at rock-bottom prices, and you are already a huge step ahead of many investors.

But how do you know whether you can still get on board with an outperforming stock like Adidas or Bechtle? A proven approach for quality stocks is to compare historical and current valuations using multiples such as the P/E ratio. You compare the valuation of the same company in the past, present and future. The procedure is based on the historical valuation. So you look at how many times the profit, cash flow, etc. the company was valued in the past. If, for example, the average P/E ratio of the past was 15 and today it is 20, then the stock seems to be currently expensive from this perspective.

On the basis of the different multiples (profit, cash flow, dividends) different fair values of the stock can be determined, which together form a picture at which price the stock seems to be fairly valued. In the case of Adidas, the stock is valued at a price of EUR 256.20 depending on the calculation method.

Fair value calculations of the Adidas stock

More information about the fair value calculation can be found here.

Conclusion

For investors, stocks are a long-term investment in which the daily ups and downs of the stock market should play a minor role. In order for your psyche to master this challenge, you must not make yourself dependent on the anchor effect and mood. Concentrate on the fundamental development of the company, which is much less susceptible to fluctuations than the stock market. This will calm you down and give you the strength to survive turbulent times on the stock market and even profit from attractive buys of undervalued high quality stocks.