Levermann Strategy

Levermann Stock Analysis: Susan Levermann was one of Germany's most successful fund managers (DWS). She managed 1.7 billion euros and was awarded for several years as the best stock fund in Germany. In 2011, she described her strategy in the bestseller "The relaxed way to wealth".

Levermann Strategy

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With 13 fundamentals to success. The Levermann strategy is based on 13 fundamentals that are evaluated with +1, 0, or -1 points. The Levermann strategy considers criteria from financing to analyst opinions and growth rates.

Connect Four. The execution of the Levermann strategy runs as follows: If a stock reaches 4 or more points, it is considered a buy. If the stock falls below 4 points, it is sold again. The fundamentals should be reviewed every 2 weeks, which classifies the Levermann strategy as more of an active strategy.

10 bis 30 Aktien ist diversifiziert. Susan Levermann also comments on the topic of diversification. One should have between 10 and 30 stocks in the portfolio, preferably from different sectors and industries.

1. Return on equity

Profitability of a company. The Return on Equity (ROE) deals with the relationship between profit and equity. Investors can use the ROE to assess the profitability of the company. Here, one can determine how the equity of a company has performed in terms of returns over the past year.

When a company grows, new land needs to be purchased, properties need to be built, machines and equipment need to be paid for, and employees need to be hired. To finance these expenses, a high return on equity is necessary.

For calculation: Microsoft had equity of 118 billion USD in 2020, from which goodwill is subtracted (-43 billion USD), resulting in tangible equity of 75 billion USD. Now, divide the net profit by tangible equity to obtain the return on equity (44 billion USD / 75 billion USD = 58.7 %).

Points allocation:
PointsReturn on equity
+1> 20 %
010 % - 20 %
-1< 10 %

2. EBIT margin

Profitability comparison without taxes and financing. With this ratio, the Levermann strategy relates the operating result to the sales, allowing investors to understand how profitable the company operates.

The operating result brings the important advantage that stocks can be compared internationally. Taxes and interest rates of the respective country are not taken into account. The higher the EBIT margin, the better a company can withstand declines in revenue.

der Formel EBIT/Umsatz * 100 handelt es sich um eine gängige Methode, um die Rentabilität eines Unternehmens zu berechnen. Microsoft revenue of 143 billion USD and an EBIT of 52 billion USD were generated in 2020. (52 billion USD / 143 billion USD * 100 = 36.4 %)

Points allocation:
PointsEBIT margin
+1> 12 %
06 % - 12 %
-1< 6 %

3. Equity ratio

Financial stability. With the equity ratio, the Levermann strategy examines the financial stability of the company. The higher it is, the more solidly the company is financed. A low equity ratio indicates that the company is financed more through debt and is therefore dependent on external capital providers.

Financial stocks often have a significantly lower equity ratio because they have a lot of debt due to their business model. Cyclical companies are significantly more vulnerable with a low equity ratio, as it can quickly lead to an inability to pay interest in a crisis.

To calculate:
Here, the equity is divided by the total capital and multiplied by 100. Microsoft had a equity of 118 billion USD and a total capital of 301 billion USD in 2020. (118 billion USD / 301 billion USD * 100 = 39.2 %)

Points allocation:
PointsEquity ratio
+1> 25 %
015 % - 25 %
-1< 15 %

4. P/E ratio 5 years

Past + Forecast. The Levermann strategy uses the price-earnings ratio to compare the current value of a stock to its earnings per share. This metric indicates how many years it would take for the company to earn back its stock price.

When looking at the 5-year P/E ratio, one considers the past 3 fiscal years, the current year, and the forecasts for the upcoming year. However, when considering the P/E ratio, one should always pay attention to the growth rates as well. A low P/E ratio does not immediately indicate a first-class company.

Calculation: At Microsoft the earnings per share of the years 2019 to 2021 (5.06 USD | 5.76 USD | 8.05 USD), the forecast for this year (9.39 USD), and the forecast for the next year (10.7 USD). Then you calculate the average value, and finally divide the current price by the earnings per share. Microsoft comes at the current price of 308 USD to a 5-year P/E ratio of 39.4.

Points allocation:
PointsP/E ratio 5 years
-1 > 16 or < 0

5. KGV forward

Use profit forecasts. This is also the price-earnings ratio. Only the estimates for the current fiscal year are considered. The average EPS forecasts are currently at USD 9.34. When we divide the price by this value, we obtain a forward P/E ratio of 32.9.

Points allocation:
PointsKGV forward
-1 > 16 or < 0

6. Analyst opinions

Assessments as a Contrary Indicator. The Levermann strategy examines the analysts' opinions in this criterion and essentially uses exactly the opposite of the majority opinion, as they reflect exactly what the market assumes. Therefore, there are also no major price movements when expectations are confirmed.

The expectations are divided into three levels: Buy=1, Hold=2, Sell=3. The average value is sought here. There is a bonus point if the majority of analysts say Sell.

Points scoring:
PointsAverage value
+1>= 2,5
01,5 - 2,5
-1<= 1,5
Points allocation for small-caps:
PointsAverage value
+1<= 1,5
01,5 - 2,5
-1>= 2,5
(In the case of small caps (market capitalization of USD 300 million to USD 2 billion) with a maximum of five analyst opinions, the assumption is considered credible. Therefore, the opposite is not assumed here.)

7. Response to Quarterly Results

Quarterly results as an indicator of the overall market. The Levermann strategy looks at the development of the stock price in relation to the reference index in this criterion.

Points distribution:
PointsPrice development ratio
+1> 1 %
0-1 % - 1 %
-1< -1 %

8. Revenue revision

Short-term news causes changes. Often, analysts adjust their assessments as soon as there are news or other fundamental changes in the respective company. More precisely, the Levermann strategy reconsiders the earnings per share for the current and upcoming fiscal year.

If the opinion has changed by more than 5% in the last 4 weeks, there will be either a bonus point or a point deduction.

Points award:
PointsNet Income revision
+1> 5 %
0-5 % - 5 %
-1< -5 %

9. Price today vs. price 6 months ago

Price development. This criterion in the Levermann strategy can be easily checked. You look at the price change of the last 6 months.

PointsPrice development (6 months)
+1> 5 %
0-5 % - 5 %
-1< -5 %

10. Price today vs price 1 year ago

Yearly performance. Here, in the Levermann strategy, the current price is compared to the price from one year ago.

Points allocation:
PointsAnnual performance
+1> 5 %
0-5 % - 5 %
-1< -5 %

11. Price today vs price one year ago

Trend reversal in price development. The 11th indicator can be calculated based on the points of two previous criteria. One looks to see if there has been a trend reversal in the price development over the last 6 months. For this, one considers criteria 9 and 10.

Points distribution:
PointsCriterion 9 and 10
+1 9 = 1 ., 10 = 0 oder -1 .
0none applies
-1 9 = -1 ., 10 = 0 oder 1 .

12. Price today vs price one year ago

Underperformance as an indicator. The Levermann Strategy calculates how the stock has performed relative to the benchmark index in the past 3 months. However, this criterion is only applied to large-cap companies (10 billion USD to 200 billion USD).

Points allocation:
PointsPerformance per month
+1< Comparison index
0none apply
-1> Comparison index

13. Net Income growth

Growth must not be missing. The growth rates are very important when evaluating a company, as future earnings will generate more cash flow. Therefore, in the Levermann strategy, we look at the projected EPS for the next fiscal year (N) and compare it to the projected EPS for the current year (A).

Points allocation:
PointsEPS N - EPS A
+1> 5 %
0none applies
-1> -5 %

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