Four German Favorites
02/10/2006 12:00 am EST
Heiko Bohmer, from his home in Cologne, is a leading financial editor focused on the German markets. A proud new father, he came to The World Money Show with not only a list of his favorite German stocks, but photos of his new baby girl. Congratulations!
"Germany is the third biggest economy in the world. It has an undervalued stock market. The country is known for its worldwide brands. It is also the biggest export nation in the world. In 2005, GDP growth was just 0.09%. I expect this to increase to 1.7% in 2006. Unemployment should fall to 4.5 million. Meanwhile domestic demand will rise in 2006. And, I expect a constant inflation rate of 1.5% for the coming year.
"Meanwhile, I expect more capital investment within Germany in 2006. I also expect foreign demand to be high. Plus, there is a new twist in German politics. Angela Merkel has become the first female chancellor in Germany and the first chancellor from the former GDR. With a new government in place, the business climate is on a five-year high. Within the European Union, Germany’s position will improve as a result of the low rise in German prices as well as labor costs. Overall, I see more opportunities in the German market than risks.
"The DAX, the leading stock market index in Germany, has significantly outperformed the major averages in the US. The German index gained 27.2% last year, versus a 3% gain for the S&P 500. Earnings for the stocks in the DAX rose an average 16.8%, while dividend growth was an average 16.1%. The average DAX stock trades at a p/e multiple of 12.5 times 2005 earnings and a multiple of .5 times forecasted 2006 earnings per share.
"Addidas Solomon (ADDYY Other OTC) designs and markets a range of athletic and sports lifestyle products. It is a well-known sports brand in the US. And I believe that its acquisition of Reebok was a good use of its cash. The firm will benefit from the 2006 FIFA World Cup Soccer, which is the second biggest sports event in the world. Soccer is the leading sport in Germany, and as host of the 2006 games, Germany will be the focus of worldwide media coverage. This exposure will be good for Addidas' sports brands. In fact, soccer—or football as we call it— accounts for 15% of Adidas’ sales. Further, Addidas will continue to sponsor the World Cup through 2014. The stock rose 34% last year and another 7% so far in 2006.
"Allianz (AZ NYSE) is the number one insurance company in Germany. It has close to $100 billion (euros) in revenues and $1.2 billion in assets under management, with 60 million customers. Despite hurricanes and floods last year, Allianz will probably achieve one of its best results. Operating profits should rise by 10%. Strong capital markets should support its investment banking operations. Further, the company’s focus is likely to shift to life and health insurance. The stock rose 31% last year and now trades at just 9.9 times estimated 2006 earnings.
"SAP (SAP NYSE) is the world’s leading provider of business software solutions, from distinct solutions addressing the needs of small and mid-sized businesses to enterprise-scale suite solutions for global organizations. SAP drives growth for its customers, the information technology sector, and itself, through its product portfolio, industry expertise, and global reach. We see strong numbers for 2006 with upside surprises. The stock rose 16% last year and another 12% so far this year.
"Siemens (SI NYSE) is undergoing a restructuring. It has already sold its cell phone division and made five acquisitions in 2005. The company has significant intellectual property. We see the company growing at twice the rate of the growth in global GDP, which is the low end of its growth range. Its portfolio of operating divisions is shifting towards future growth opportunities. We also see sustainable strengthening in its operations as it expands its operations into high growth markets, such as the medical and power industries. The stock rose 16% last year and another 4% in 2006."