June 14, 2019

Apple, Samsung oder Cola? The Value Rank helps investing

We have already addressed what the basic idea behind the Obermatt Value Rank is in two videos (Working with Value Ranks | Interpreting the detail Value Ranks). In this video, we will take a closer look at real stocks in order to develop a feeling for how to work with the Value Ranks on the basis of concrete examples.

The stock analyses we are discussing here are no longer up to date. So do not use these analyses for the actual purchase of shares. Everything we show here is solely intended to help you work with the Obermatt Value Ranks.

Let's take a look at shares of companies we already know. For example the mobile phone sector: Samsung from Korea and Apple from the USA. The Asians have a share price of CHF 45 with annual sales of CHF 210 billion. The Americans' share price is CHF 188, while annual sales are CHF 260 billion. Which of the two companies is cheaper? You can't say, because the companies differ in the number of shares they have in the market. And that's exactly why you need the Value Ranks. They show you much more than just the price. They put the price in relation to the size of the company. The Obermatt Value Ranks for the two stocks are:

Apple and Samsung Ranks

This means that the market expects Apple to grow much more than Samsung. In fact, Samsung doesn't need to grow more than its competitors at all, as it's cheaper than virtually any other comparable company with a Value Rank of 98.

Does that make sense to you? Not to Obermatt's CEO, Dr. Hermann J. Stern. Apple is already very big and not as exciting anymore. After the sugar rush of the iPhone launch - which was more than a decade ago - Apple didn't introduce other really exciting products to market. ...in his opinion. Apple might grow a bit more than Samsung, but certainly not as much as the Value Rank suggests. That's how Dr. Stern personally assesses the future. You can form your own opinion and come to a different conclusion.

For example, you could argue that Apple has much better security technology than other competitors in the market. And if you look at the Value Rank of 32, it means that Apple only needs to outperform 68% of its competitors. The decision would then be a simple one for you: you buy Apple shares!

What you're actually doing here is relating the present and the future: you're ralatig the Value Rank that represents the company's present to the prospects of the company that you personally expect in the future. This way, you create your own investment history, from which primarily you benefit.

Let's look at another industry that we also know well: the automotive industry. Here, too, the principle remains the same - we associate the Value Rank of the companies with their future prospects. The company with the highest Value Rank should actually have the worst prospects, whereas the car manufacturer with the lowest rank is the most expensive company with the rosiest future. At least this is reflected in the current share price, which is used to compute the Value Rank. The Obermatt Value Ranks were the following at the time this article was written:

Automobile Ranks

The Obermatt Value Ranks clearly show that Volkswagen has the best prospects, followed by Daimler and BMW. The outlook for Nissan, Honda, Toyota, and GM, on the other hand, is rather gloomy. They are all at a similarly low share price level and are receiving good Value Ranks in return.

What do you think of the ranks? Do you agree with the market or do you think differently? For Dr. Stern, the high Value Rank of Toyota makes no sense. For this reason, he would buy Toyota because they produce good cars. And since the company has a high Value Rank, it will only have to deliver an average performance in the future to generate a good return on the current share price.

Now something entertaining. Here are the Value Ranks of Pepsi and Coca Cola:

Pepsi and Cola Ranks

How do you feel about that? There are many ways to interpret the ranks. For example, the fact that sugar and caffeine drinks are addictive could explain excellent returns for a long time to come. And that, in turn, would mean that the low Value Ranks are not really a problem.

On the other hand, one could argue that sugar is the nicotine of the future. People will consume less and less of it. As a result, the shares of such companies will underperform the market. The low ranks are therefore too low and the shares much too expensive.

You could even become original in your interpretation and conclude: Since living standards rise more and more, richer people will resort to more expensive specialty coffee drinks. Instead of consuming their caffeine from dull sugar water, they will increasingly opt for alternatives such as specialty coffee.

If you take a strategic approach to the whole thing, the following interpretation is also possible: both companies will adapt and come up with new drinks. This, in turn, could mean that the brand name will hardly be helpful anymore. On the contrary, it could become an obstacle for them because people associate it with unhealthy products. That would also be a reason not to pay a high price for the stock in the here and now.

If you compare only Coca Cola and Pepsi directly with each other, you might come to the simple conclusion that you like Coca Cola more and therefore you think it is justified that it is more expensive and its Value Rank is lower. But you might as well say the opposite.

It is also possible that you hate sugary drinks and do not want to invest in companies of this kind. That's only fair. By the way, you won't lose any money if you don't invest here, but somewhere else. Nobody can invest in all shares at the same time - and even if they did, they would only receive a fraction of each share compared to the total assets. Nothing to worry about.

As you can see, there are countless ways to see the future. How and what you believe depends entirely on you.

What should you do with companies that you do not know?

The simple answer is: Get to know them! It's more fun than you think. Dr. Stern has often been surprised by all the different business models of the companies on the stock markets. He often finds businesses that he appreciates and likes to support such as:

Fruit - Total Produce from Ireland
Battery recycling - Umicore from Belgium
Energy supplier with a strong solar strategy - Endesa from Spain
Wood for clothing fibers - Lenzing from Austria
Red Chocolate - Barry Callebaut from Switzerland

Start with good Obermatt ranks and google the companies you don't know yet. Dr. Stern is sure you'll find many candidates that you find interesting and that you'd like to support. It is fun and enriching to explore all the different companies in this world. Try it yourself!

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