Levermann Strategy
Levermann Equity Analysis: Susan Levermann was one of Germany's most successful fund managers (DWS). There she managed 1.7 billion euros and was awarded for many years for the best equity fund in Germany. In 2011, she described her strategy in the bestseller "The Relaxed Way to Wealth." She achieved 22% returns p.a. with it over several decades.
Stock analysis according to Susan Levermann
With 13 key figures to success. The Levermann strategy is based on 13 key figures, which are evaluated with +1, 0 or -1 points. The Levermann strategy considers criteria ranging from financing to analysts' opinions to growth rates.
Four wins. The execution of the Levermann strategy runs as follows: If a stock reaches 4 or more points, it is considered worth buying. If the share falls below the 4 points, it is sold again. The key figures are to be reviewed every 2 weeks, which makes the Levermann strategy rather to be classified as an active strategy.
10 bis 30 Aktien ist diversifiziert. Susan Levermann also comments on the topic of diversification. You should have between 10 and 30 stocks in your portfolio, preferably from different sectors and industries.
The 13 Levermann key figures in detail
1. Return on equity
Profitability of a company. Return on equity deals with the ratio of profit to equity. With the return on equity, investors can check the profitability of the company. Here you can see how a company's equity has earned interest over the last year.
When a business grows, new land must be purchased, real estate must be built, machinery and equipment must be paid for, and employees must be hired. A high return on equity is necessary to finance these expenses.
To calculate: Microsoft had equity of USD 118 billion in 2020, goodwill is deducted from this (- USD 43 billion) and the tangible equity of USD 75 billion is obtained. Now divide the net profit by the tangible equity and get the return on equity (USD 44 billion / USD 75 billion = 58.7%).
Scoring:
| Points | Return on equity |
|---|---|
| +1 | > 20 % |
| 0 | 10 % - 20 % |
| -1 | < 10 % |
2. EBIT-Margin
Profitability comparison without taxes and financing. With this ratio, the Levermann strategy puts the operating result in relation to sales, allowing investors to see how profitable the company is operating.
The operating result has the important advantage that shares can be compared internationally. Here, taxes and interest of the respective country are not taken into account. The higher the EBIT margin, the better a company can cope with declining sales.
To calculate: divide EBIT by sales and multiply by 100. For Microsoft sales of USD 143 billion and EBIT of USD 52 billion were generated in 2020. (USD 52 billion / USD 143 billion * 100 = 36.4 %)
Scoring:
| Points | EBIT-Margin |
|---|---|
| +1 | > 12 % |
| 0 | 6 % - 12 % |
| -1 | < 6 % |
3. Equity ratio
Financial stability. The Levermann strategy uses the equity ratio to test the financial stability of the company. The higher it is, the more solidly financed the company is. A low equity ratio signals that the company is financed more by debt and is therefore dependent on lenders.
Financial stocks often have a significantly lower equity ratio because their business model means that they have a lot of debt capital. Cyclical companies are much more at risk with a low equity ratio, as in a crisis it can quickly become impossible to pay the interest.
To calculate:
Here, you divide the equity by the total capital and multiply by 100. Microsoft had equity of USD 118 billion and total capital of USD 301 billion in 2020. (USD 118 billion / USD 301 billion * 100 = 39.2%)
Scoring:
| Points | Equity ratio |
|---|---|
| +1 | > 25 % |
| 0 | 15 % - 25 % |
| -1 | < 15 % |
4. PER 5 years
Past + Forecast. With the price-earnings ratio, the Levermann strategy relates the current value of a share to the earnings per share. This ratio indicates after how many years the company has earned the share price.
The 5-year P/E ratio takes into account the past 3 fiscal years, the current year and the forecasts for the coming year. However, when looking at the P/E ratio, one should also always consider the growth rates. A low P/E ratio does not immediately indicate a first-class company.
To calculate: So we take at Microsoft the earnings per share for the years 2019 to 2021 ($5.06 | $5.76 | $8.05), this year's forecast ($9.39) and next year's forecast ($10.7). Then one calculates the average value and divides the current price by the earnings per share as last. Microsoft comes to a 5-year P/E ratio of 39.4 at the current price of USD 308.
Scoring:
| Points | PER 5 years |
|---|---|
| +1 | 0-12 |
| 0 | 12-16 |
| -1 | > 16 or < 0 |
5. PER forward
Use profit forecasts. This is also the price/earnings ratio. Only the estimates for the current year are considered. The average EPS forecasts are currently USD 9.34. If we divide the price by this value, we get a forward (future) P/E ratio of 32.9.
Scoring:
| Points | PER forward |
|---|---|
| +1 | 0-12 |
| 0 | 12-16 |
| -1 | > 16 oder < 0 |
6. Analyst Opinions
Assessments as a contraindicator. The Levermann strategy looks at the analysts' opinions for this criterion and uses virtually the exact opposite of the majority opinion, as these reflect exactly what the market assumes. Therefore, there are no large price movements when expectations are confirmed.
Expectations are divided into three levels: Buy=1, Hold=2, Sell=3. The average value is asked here. A plus point is given if the majority of analysts say Sell.
Scoring:
| Points | Average value |
|---|---|
| +1 | >= 2,5 |
| 0 | 1,5 - 2,5 |
| -1 | <= 1,5 |
Scoring for small caps:
(Bei Small Caps (Marktkapitalisierung 300 Mio. USD bis 2 Mrd. USD) mit maximal fünf Analystenmeinungen wird die Annahme als glaubwürdig eingestuft. Somit wird hier nicht das Gegenteil angenommen.)
| Points | Average value |
|---|---|
| +1 | <= 1,5 |
| 0 | 1,5 - 2,5 |
| -1 | >= 2,5 |
7. Reaction to quarterly figures
Quarterly figures as an indicator of the overall market. For this criterion, the Levermann strategy looks at the development of the share price in relation to the reference index.
Scoring:
| Points | Price development ratio |
|---|---|
| +1 | > 1 % |
| 0 | -1 % - 1 % |
| -1 | < -1 % |
8. Profit revision
Short-term news makes for change. Analysts often adjust their assessments as soon as there is news or other fundamental changes at the respective company. More specifically, the Levermann strategy again looks at earnings per share for the current and coming fiscal year.
If the opinion has moved by more than 5% within the last 4 weeks, there is a plus point or a point deduction.
Scoring:
| Points | Profit revision |
|---|---|
| +1 | > 5 % |
| 0 | -5 % - 5 % |
| -1 | < -5 % |
9. Price today vs. price 6 months ago
Course Development. This criterion in the Levermann strategy is relatively easy to look up. One looks at the price change of the last 6 months.
Scoring:
| Points | Share price development (6 months) |
|---|---|
| +1 | > 5 % |
| 0 | -5 % - 5 % |
| -1 | < -5 % |
10. Price today vs price 1 year ago
Annual performance. Here, the Levermann strategy compares the current price with the price from a year ago.
Scoring:
| Points | Annual performance |
|---|---|
| +1 | > 5 % |
| 0 | -5 % - 5 % |
| -1 | < -5 % |
11. Price today vs price 1 year ago
Trend reversal in the share price. The 11th indicator can be calculated from the points of two previous criteria. We look at whether there has been a trend reversal in the share price over the last 6 months. This is done by looking at criteria 9 and 10.
Scoring:
| Points | Criterion 9 and 10 |
|---|---|
| +1 | 9 = 1 Point, 10 = 0 oder -1 Point |
| 0 | none applies |
| -1 | 9 = -1 Point, 10 = 0 oder 1 Point |
12. Price today vs price 1 year ago
Underperformance as an indicator. The Levermann strategy calculates how the share has performed over the last 3 months in relation to the benchmark index. However, this criterion is only used for large cap companies (USD 10 billion to USD 200 billion).
Scoring:
| Points | Performance pro Monat |
|---|---|
| +1 | < Benchmark index |
| 0 | none applies |
| -1 | > Benchmark index |
13. Profit growth
Growth must not be missing. Growth rates are very crucial when valuing a company, as future profits generate more cash flow. So, with the Levermann strategy, you look at the projected EPS for the next fiscal year (N) and compare it to the projected EPS for the current year (A).
Scoring:
| Points | EPS N - EPS A |
|---|---|
| +1 | > 5 % |
| 0 | none applies |
| -1 | > -5 % |
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