Investing in quality stocks has historically brought investors better returns. This does not guarantee that this will continue to be the case in the future, but quality companies have the best prospects for success in the coming times. Quality stocks have strong competitive advantages and growing money-making volume.
Many equity investors prefer to invest in quality and future higher earnings potential over a low purchase price. Investors in quality stocks may lose out on the best returns, but the end result has a better chance of being positive.
The owner of quality stocks does not have to sink into gloom when the market panics, but rather has a rare and brilliant opportunity to buy more quality companies at a discount to their true value. The situation is not as brilliant for shares of bad and mediocre companies.
Who are quality stocks suitable for?
Quality stocks are suitable for long-term investors who value steady returns and low risk. With quality stocks, returns are generated precisely through rising earnings and dividend growth over a long period of time.
Finding the star stocks on the stock market may seem easy on paper, but in reality it takes a lot of time and effort. A quality company alone does not make a great investment at any price. The downside is that the valuation of the highest quality companies is almost always at a challenging level.
Investing in quality stocks requires patience, as results can only be seen years after the shares are purchased. In normal market conditions, it is challenging to find suitable quality stocks, so market panics are times when combinations of quality, growth and profitability are available at a reasonable price.
Although quality companies often enjoy very high valuations, returns can also be good, as valuation multiples decrease over time as earnings grow year after year. The best outcome for investors in quality stocks is to find growing and reasonably priced quality companies, which makes it possible to enjoy both earnings growth and rising valuation multiples at the same time.
What is a quality stock?
A quality stock can be identified by, for example, above-average profitability, but it is also worth looking at the longer-term development instead of the figures for a single year. In addition, the direction of the trend is an important point to pay attention to. If profitability figures are declining year after year, this may indicate a loss of competitive advantage. This is never a good thing for an investor.
One good way to ensure favorable conditions for successful investing is to focus specifically on finding, buying and owning great, high-quality companies. Time is usually not on the side of those who invest in mediocre companies, as the return is based on the resolution of a temporary undervaluation rather than the creation of shareholder value.
The investor must therefore be very vigilant with timing and sell the shares after the undervaluation has been eliminated. When quality is the number one criterion, daily price movements are of little importance to the investor, as it is likely that shareholder value and investor returns will only continue to grow over time.
Finnish quality companies
The following companies are traditional and mature quality companies on the Helsinki Stock Exchange. They create compelling shareholder value. In addition, their strong competitive advantages enable a high return on equity.
Kesko has undergone a strategic change by selling non-strategic businesses. The company has channeled the funds generated from this into acquisitions that support core businesses. This has been a very profitable move, as the company continues to grow.
Elevator company Kone has invested in the long-term development of elevator technology. The company has benefited in particular from the growth of the Chinese market. Kone continues to maintain its position as one of the world’s largest elevator companies thanks to its continuous development work and its highly optimized operating models.
eQ is a domestic asset management and investment group with a focus on private equity and real estate funds. The company’s growth is expected to continue, as eQ has committed and skilled personnel and strong ownership.
American quality companies
Properly selected American stocks are more predictable and profitable investments than Finnish ones.
Alphabet is best known for Google. In addition to its search engine operations, the company is known for services such as Google Maps, Google Translate, YouTube, and the Android operating system. Compared to other stocks, Alphabet’s stock has had the most stable and moderate price development.
The Coca-Cola Company is the world’s largest manufacturer, distributor and marketer of non-alcoholic beverages. In addition to sugary soft drinks, the company owns several brands in the water, milk, iced tea, juice and coffee beverage categories. Coca-Cola has been able to fill the gap caused by the health boom with a variety of alternatives.
Apple is the world’s largest technology company by market value. Apple’s devices are characterized by branding and higher prices than other offerings on the market. In recent years, other smartphone manufacturers have also introduced their own luxury models, so Apple’s operating profit growth has waned slightly. Apple has responded by focusing on experiments in the form of various accessories.
Where can I buy quality stocks?
Nordnet
- Trading costs are 0.055% / 3 EUR- 0.30% / 20 EUR depending on the exchange and the number of trades.
- Other costs for Super Funds 0 EUR
- Share savings account: Yes
- Well suited for beginners and Finnish stocks
eToro
- 0% / 0 EUR
- Withdrawal fee $5, activity fee $10/month if account is not logged in for 12 months
- Share savings account: No
- A small selection of domestic stocks