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NexGen Opportunities in Germany?

By Matt McCallMay 14, 2017



At the start of 2017, there were two early elections circled on investors’ calendars that held the power to change Europe forever: the Dutch in mid-March and the French in April. After last year’s surprising Brexit vote in favor of the U.K. leaving the European Union (EU), there was a real possibility that the far-right populists could win the vote and lead to similar outcomes in both the Netherlands and France.

The Dutch election was the first defeat of the populists in favor of potentially abandoning the EU. The French election was predicted to be close, but as the date grew nearer it was clear that pro-EU candidate Emmanuel Macron would prevail. Again, the far-right was defeated and the EU scored another victory.

Now global investors turn their attention to the even bigger German national election in September, when Chancellor Angela Merkel will attempt to secure a fourth term. She is currently favored after a convincing win by her conservative party in the recent regional vote, which saw disappointing results for the far-right populists.

All of this European political postulating may not seem relevant to most American investors, who are more focused right now on the results of their own recent election, but it’s a mistake to ignore what’s going on. I’ve followed the elections closely and in researching the upcoming German vote, I’ve uncovered a potentially huge NexGen opportunity.

Germany is the largest economy in Europe, and by far the most stable and best positioned if anything were to happen in the region. And yet the country’s stock market – the DAX – is trading at a lower valuation than its Western European peers.

The DAX trades with a forward P/E ratio of 13.7. For comparison, the diversified European stock index (the Stoxx 600) has a ratio of 15.6, France is at 15.5, Spain is at 15.1 and the United States is even higher at 17.6.

Assuming the “E” portion of the ratio (earnings) remains constant, the only way for Germany to catch up is for the “P” (price) to increase. That tells me there could be some attractive buying opportunities in German stocks for the rest of the year.

There are a few ways U.S. investors can make money on this, with the iShares MSCI Germany Index ETF (EWG) as the most popular option. The ETF is already up nearly 15% on the year, but remains 17% off its all-time high set in 2007.

Another option is investing in German stocks that trade on U.S. exchanges as ADRs (American depositary receipts), which represent a specified number of shares in a foreign corporation. They’re basically the same as stocks, and some of these larger ADRs are performing well in 2017 with further upside potential.

It may not sound as exciting as robotic arms performing surgery or lithium batteries powering electric vehicles, but my NexGen strategy is more than just investing in these futuristic trends. It’s about taking a big-picture approach that includes the global landscape to uncover the strongest opportunities, wherever they may lie. And I can guarantee you that Old Wall Street is not putting money to work in the best valuation among developed countries right now! That’s exactly why it’s an area you can’t afford to ignore.

In fact, I’ve already added several German names to my NexGen watch list, which is growing by the day. I shared a few of the other areas I’m watching with my subscribers in this week’s issues. You can learn more about them with your no-risk Charter Membership. That offer is about to expire, so don’t wait! You can find out more information here.

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