Since 2008, Swiss asset manager Herens Quality Asset Management has presented its annual Quality Corporate Excellence Awards. With these awards, the asset manager recognizes those companies that behave sustainably and excellently in their day-to-day business and selects the world’s best stocks. The following article is about the asset manager’s selection process and five companies that are among the world’s best stocks.

The selection process

The Swiss asset manager arrives at its ranking of the world’s best stocks in several steps. First, there is an investment universe of over 3800 companies. This includes the various Stoxx regional indices and also the MSCI All Country World. In the next step, the companies are analyzed with quantitative key figures to make a pre-selection. Cash flow, net debt or return on equity play an important role as examples. The qualitative analysis then considers the business model, market environment and management. Finally, the individual criteria are weighted and a ranking of the world’s best shares is determined and published.

Five selected companies

From the investment universe of over 3,800 companies, Herens Quality Asset Management has filtered out a small number of stocks that are believed to have above-average future potential. Five of these companies with good prospects are presented below.

TSMC

The Swiss asset manager named the Taiwanese company TSMC as the best quality stock from the China/Taiwan region. The company is the largest contract manufacturer in the semiconductor industry, with a market share of around 55% in 2020. The best quality chips in the world come from TSMC – so it is no coincidence that they are also among the best quality companies in the world.
For example, TSMC produces for Nvidia, Apple and Co. The entire industry is expected to grow by 10-15% in the next few years. After the share recently declined somewhat, the current bottoming out may be an opportunity to buy into TSMC. Future trends such as autonomous driving, artificial intelligence, gaming, etc. are likely to further fuel the chip boom.

Hermes International

Hermes International, a French luxury company, lands among the world’s best-performing stocks. The family-run company is benefiting from the boom in luxury goods. The industry as a whole has grown by more than 6% p.a. over the past 20 years. The luxury market is thus growing faster than the global economy. Behind LVMH, Hermes International with Kering is number 2 in the luxury market in France.
Hermes has strong pricing power, prices are at the upper limit. At the same time, 50% of the business model consists of leather goods. Hermes also focuses on accessories, textile products, fragrances and watches. Hermes International is thus broadly diversified – and the same applies to its sales markets. The company continues to grow briskly in Asia, Europe and America.

Mayr-Melnhof

With Mayr-Melnhof, an Austrian company also lands among the best quality stocks. According to the Swiss asset manager, there is currently no better company in Austria. Mayr-Melnhof is the world’s leading manufacturer of recycled cartonboard, and at the same time has considerable market shares in virgin fiber-based cartonboard and folding carton production. Large companies such as Unilever, McDonald’s and others are customers of the Austrian paper producer.
Societal trends such as e-commerce, the renunciation of plastic, etc. mean that Mayr-Melnhof continues to focus on growth. The family is still the main shareholder in the company. This promotes stability in the strategic orientation.

EQ

EQ Oyj is a Finnish asset manager that is probably not well-known to many investors. This is because only around 15% of the shares are in free float. Moreover, they are only traded on the Finnish stock exchange in Helsinki. Nevertheless, investors have been able to achieve well above-average returns with EQ Oyi shares in recent years. Over the last five years, the share price has risen by over 330%.
The business model consists of various services for institutional investors such as transactions of real estate, acquisitions and mergers. In Finland, EQ Oyi has a strong market position. Well over half of the largest Finnish investors are customers of EQ Oyi. In the last 7 years, the company has increased its profits every year.

MarketAxess

MarketAxess is a US company from the financial technology sector. Among other things, it operates an electronic trading platform for credit markets. At the same time, it offers post-trade services and provides market data. With a diversified business model and a focus on technological innovation, MarketAxess aims to continue growing in the future.
However, quality sometimes comes at a price. MarketAxess’ estimated P/E ratio for 2022 is around 50, although growth is also enormous. However, each investor must decide for himself whether a share with such a valuation is worth considering.