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First signs of hope: turnaround on equity markets: how the brave are now positioning | news


by Klaus Schachinger, Euro Sunday

Ands simply remains difficult. The risks to the economy do not decrease, prices rise. Inflation is worrying businesses and consumers, and many are suffering from the effects of the war in Ukraine and the shortage of global supplies. In some areas of this country, it is therefore best to play it safe with forecasts these days. Recently, for example, the German Association of Mechanical Engineering, the second largest German industry after electrical engineering, lowered the production targets of member companies for the current year for the second time in a row.

The speed with which the situation has clouded is extreme, says VDMA president Karl Haeusgen. Earlier this year, his association had spent 7% growth for 2022, corrected to 4% in March. This too can no longer be maintained, according to the president of the VDMA.

Ifo barometer increases

But from time to time, optimism mingles with caution. The much-noted indicator of the business cycle of the ifo in Munich has just provided signs of stabilization in the difficult environment. Contrary to expectations, the barometer rose to 93 points in May for the second consecutive month. Experts had predicted a drop to 91.4 points. “The German economy is proving solid despite fears of inflation, material shortages and the war in Ukraine. There are currently no signs of recession,” said Clemens Fuest, president of the ifo institute, commenting on the development.

Some investors on the Frankfurt Stock Exchange also assume that Germany can avoid a recession. Although the DAX and MDAX hit new 52-week lows in mid-March in the first weeks of the war in Ukraine, April was also a bad month. Since then, however, things have returned to look with strong fluctuations, in the DAX by more than 14%, in the MDAX by almost 6%. However, German stocks are still cheap. Index ratings are an incentive for many investors to expand positions in their portfolios or acquire new ones, despite the risk. The rating level is with a P / E ratio about twelve for the current year in the DAX and nearly 15 in the MDAX significantly below the long-term average. On average over the past decade, the DAX has been valued at a profit multiple of 13.4, the MDAX with a profit of 18. However, most investors remain cautious and prefer the blue chip DAX. This is not unusual in difficult stock market times. From an editorial perspective, stocks in four different categories offer good prospects for solid returns in the current environment. We present these titles below.

Voted favorably

Similar to the DAX, the shares of German carmakers BMW, Mercedes-Benz and Volkswagen are currently listed below or at the same level as their long-term average valuation. Furthermore, companies reward their shareholders with attractive dividends, despite the billions invested in technological change. Stocks from automotive groups BMW and Mercedes-Benz Group, which focus on the premium segment, posted double-digit gains from their March DAX lows and continue to be among the cheapest stocks in the core index. This is also the case with Volkswagen, although the Wolfsburg-based company is mainly active in the volume segment and is therefore particularly affected by bottlenecks in global delivery of components such as chips due to higher quantities.

To minimize the consequences of the shortages, BMW and Mercedes are focusing on the production of models with particularly high margins. The two premium manufacturers can relatively easily pass on the higher costs caused by inflation to their wealthy clientele. All this protects the margins. The economic stimulus package just approved by the Beijing government could give new impetus to the crown-hit Chinese economy and should also boost the BMW and Mercedes business.

Robust against turbulence

Groups whose business models are less affected by economic fluctuations are particularly valued as defensive stocks in tough times in equity markets. These include Europe’s largest primary insurer, Allianz, and the world’s largest service provider for primary insurers, Munich Re.

Current trends are spurring the business of insurers and the also defensive utility company RWE. Allianz and Munich Re benefit from rising long-term interest rates as they invest the lion’s share of insurance premiums in fixed income securities. Additionally, companies can now raise the prices of insurance policies as well. Both insurance companies can also afford to pay at least the previous year’s dividend, even after weak years. Supplier RWE, on the other hand, is Germany’s largest producer of green electricity after swapping business lines with former rival E.ON and is also pushing the expansion of the green hydrogen business.

Green boom

Due to the war, Europe wants to quickly reduce its dependence on oil and gas from Russia. The accelerated expansion of renewable energy also provides solar and wind farm operator ENCAVIS with significant business momentum, benefiting the share’s price performance. The card currently has a high relative strength. Shares of chip maker AIXTRON are also currently enjoying strong momentum. Compound semiconductors are also produced with systems from AIXTRON. They are more energy efficient than silicon chips and are often the best alternative to conventional chips, for example in electrically driven cars.

The growth of the subsidiary T-Mobile US brings resilience and relative strength to the shares of Deutsche Telekom. Together with financial investor Brookfield Asset Management, European mobile tower leader Cellnex will offer € 20 billion for the Telekom subsidiary Deutsche Funkturm. As expected, Telekom could use the money to increase its stake in T-Mobile US.

Knige in the US technology sector

From the trend to electric mobility and increasing digitization Infineon shares benefit in many industrial sectors. The Munich-based company is the world’s largest developer of car chips. The value of German technology has recently suffered steep price losses such as large US tech companies Amazon, Alphabet, Microsoft or chip developer NVIDIA. The reason: the turnaround in interest rates introduced by the US Federal Reserve to combat inflation. Technicians are considered particularly vulnerable here. The NASDAQ US technology exchange index slipped with a price loss of more than 20% from the maximum in a bear market.

Recently, however, big technologies have been on the upswing again. Amazon, Alphabet, Microsoft and NVIDIA dominate their markets and have large cash reserves. On Amazon, the stock split scheduled for Monday at a ratio of 1:20 also provided momentum. Paves the way for the giant in the Dow Jones index. The demerger at Google’s parent company Alphabet is scheduled for July 15.

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Cheap car stocks

Despite ten percent less sales in the first quarter due to bottlenecks in the supply of chips and harnesses, Mercedes-Benz earned 19 percent more with an operating profit of 5.3 billion euros and had sales on six percent more with 34.9 billion euros. Focusing on high margin models that are in demand is paying off. In terms of margin, Mercedes has so far been more successful than its BMW competitor with a similar strategy. The Stuttgart are therefore rated higher. However, both stocks remain very cheap. Successes in broad technological change offer upside potential.

Robust titles

The business of the insurers Allianz and Munich Re is proceeding well. Thanks to high reserves and provisions, Allianz coped well with the $ 5.8 billion fine from the US subsidiary AGI debacle. A firewall was built around valued US asset manager Pimco. Investor uncertainty has disappeared. RWE utility makes good money in the electricity business.

boom

Digitization, which has accelerated in many industries at the latest since 2019, has led to persistent bottlenecks in chip deliveries, aggravated for some time by problems in supply chains. This brings good business to AIXTRON and Infineon in the chip business. T-Mobile US leads 5G networks in America. This pushes the parent company Deutsche Telekom. Green energy producer ENCAVIS takes advantage of the rapid expansion of regenerative energies.

USA technology

YTD profit-taking has left their mark on the valuations of Alphabet, Amazon, Microsoft and NVIDIA. Amazon and Alphabet are now cheaper than the 10-year median. Chip developer NVIDIA’s P / E has halved from its peak of 75, but is above the median. At Microsoft, the P / E ratio has gone from well under ten to over 35 since the end of 2012. The decline is moderate.

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