Investing in high-quality stocks: What investors should know
10 Sep 2018 ADVERTORIAL
Every investor prizes a high quality company that delivers steady and predictable growth. But how do investors distinguish between a good and bad investment? Andrew Dittberner, Chief Investment Officer at Old Mutual Wealth Private Client Securities explains that there are multiple elements that qualify a stock as high quality, and savvy investors need to take all these factors into account when making a decision to invest in a company or not.
“There are a few misconceptions around what constitutes a high quality company. For instance, a large, corporate company is not necessarily high quality, while a small business isn’t always of low quality. There are many aspects that need to be considered,” explains Dittberner.
He points out that despite the myths and confusion in identifying high quality companies, there are key characteristics that cannot be overlooked. “Predictable, steady earnings growth; good capital allocation; return generation; agility and strong balance sheets are all considerations that investors need to take into account,” says Dittberner.
According to him, the recent rise in the popularity of technology companies highlights the importance of considering both quality and valuation when making investment decisions. “Not all technology companies are high quality companies, and industry and market trends often result in investors basing their decisions on “the next big thing”, which could be detrimental. As a result, investors often misinterpret quality, get swept up in market sentiment and assume that they’re investing in a great business. The market does not, however, determine whether a company is a quality business or not.”
Dittberner concludes by advising investors to scrutinise the finer details when looking for quality stocks. “Investors need to ensure that a strong balance sheet, agility and steady earnings growth are driving their investing decisions – not what the market considers to be ‘hot’ or ‘the next best thing”.