Quality has its price – despite rising inflation with first-class companies

Shares in quality companies tend to be quite highly valued. In return, they offer investors high protection against inflation. “Invest in quality” – it sounds like an obvious investment strategy. But what characterizes such values? And where can you find them?


When choosing stocks, many investors focus on common metrics such as price-to-earnings ratios or dividend yields. Or they only buy one stock because it has just fallen sharply. With these approaches, however, the long-term future prospects of the companies behind them are hardly appreciated. This is precisely one of the most important criteria for promising investments. More specifically, the main concern is the quality of the companies and thus the robustness of the business models. This can provide security, especially in turbulent times. This approach seems particularly exciting, especially in the current stock market phase.

Quality companies are groups that are characterized by profitability over a long period of time. As a result, companies have a large amount of financial resources at their disposal that they can invest in new, future-oriented business areas. This significantly reduces the risk of missing out on an important trend. An important, almost monopoly position of the companies is also an advantage, so that they do not have to fear any major competition in their industry. As a result, higher costs can be more easily passed on to customers without fear of a large fine. This is an important quality attribute for investors, especially in times of high inflation.

The return on capital should be higher than the cost of capital

When looking for quality companies, it is crucial to analyze fundamentals. Useful key figures can be the different profit ratios, cash flow generation, the degree of indebtedness or the ratio between profit and interest burden. It is especially important that companies, year after year, generate a return on capital over their cost of capital. And preferably constantly over an entire business and financial cycle. This can be seen from the key figure ROCE (“Return on Capital Employed”), which is set in relation to the costs of raising debt and equity. In general, when it comes to ROCE, the higher the return on invested capital, the better. Applied to financial investments, a ROCE of, for example, 20 percent will mean that a saver achieves an annual return of 20 euros out of 100 euros of invested capital. Even if investors were to enter such stocks at a rather unfavorable time, a high and long-term profitability of the companies still provides a good chance of a successful long-term return.

Microsoft as a successful premium IT all-rounder

There are currently only a few companies that actually meet the aforementioned criteria over a long period of time. The majority come from the United States. Microsoft sets a good example. The world’s leading software provider has been making a lot of money with its Windows operating systems and PC application programs for years. As a result, the technology giant was able to invest in the next growth areas at an early stage and is now also very well positioned in the areas of cloud, artificial intelligence, data security and gaming. The figures for the third quarter of 2021/22 have just shown that the business can continue to be positive even in times of crisis. Sales increased by 18 percent and earnings per. share by 14 percent. Both were above the consensus estimates.

The latest correction of the stock together with the volatile market environment ensures attractive conditions for structured products. Discount vouchers also offer investors a degree of partial protection thanks to the reduced access. An example of this is Microsoft discounter with WKN DW1DDQ from DZ BANK. Since the ceiling is $ 250 below the current stock price, a sideways movement of the stock until the end of 2023 is sufficient to achieve the maximum return of 16.5 percent (9.7 percent pa) to retire. As with all structured securities, there is a risk of total loss if the issuer does not meet its payment obligations.

LVMH dominates in the luxury segment

In Europe, the consumer goods manufacturer LVMH is one of the qualitatively excellent companies. With its focus on fashion and leather goods, the luxury group is the undisputed market leader. In its core business, which accounts for three-quarters of its profits, LVMH achieves above-average operating margins of nearly 40 percent and gains market share worldwide. The French are also successful in selling perfumes, cosmetics, luxury watches, jewelry, wine and spirits. The stock qualifies as a quality title primarily due to the high earnings momentum and the strong margins. This is largely priced into the stock price. Against this background, the bonus ceiling certificate with WKN DV9UHP from DZ BANK at LVMH could represent an interesting alternative to direct investment. That way, investors can earn something even if the stock moves sideways. If the EUR 500 barrier is never breached at the end of the product’s maturity in June 2023, investors will receive a refund of EUR 800 per tonne. certificate. If the barrier is touched or undershot, the product repeats the performance of the underlying.

Note: The status of all product information is May 2, 2022

This advertisement is only for persons resident or doing business in Germany. You are about to buy a product that is not simple and can be difficult to understand.

The base prospectus prepared by DZ BANK in accordance with the legal requirements regarding the public tender and any supplements and the associated final terms is published on DZ BANK’s website www.dzbank-derivate.de and can be downloaded from https: // www.dzbank-derivate. de / DW1DDQ or https://www.dzbank-derivate.de/DV9UHP or (there under “Documents”). You should read the prospectus before making any investment decision to fully understand the potential risks and benefits of deciding to invest in the Securities. The approval of the prospectus by the competent authority should not be construed as an approval of the securities offered or admitted to trading on a regulated market. The current version of the basic information sheet prepared by DZ BANK is also available on DZ BANK’s website at https://www.dzbank-derivate.de/DW1DDQ or https://www.dzbank-derivate.de/DV9UHP (available below “Documents”). This applies as long as the product is available to retail investors.

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