German Stocks To Consider As Angela Merkel Wins Reelection

James Dennin, Kapitall: German elections are confusing enough, but why is the market down despite the re-election of business-friendly Angela Merkel?

Eyes were on Western Europe this weekend, as Angela Merkel sought re-election in what was seen as an important referendum on her pro-business, pro-EU policies. And yet, despite calls for a minimum wage and other leftist reforms on issues like climate change, Merkel was swept to one of the largest victories for her party since 1990.

While the markets seem less enthused than one might think – German stocks are down as of this morning – it might have more to do with the idiosyncracies of the German political system than with Merkel's influence on the business community at large.

Germany's electoral system is one of the most complicated in the world. More wary than most about the dangers of centralized authority, the framers of the current German constitution wanted to make it hard, if not impossible, for any one party to gain too much power.

But they also didn't want it to be impossible for moderate parties to gain prominence, as it was before WWII when the Nazi's rose to power. As a result they set up a mixed parliament, with voters casting one ballot for individual candidates and one ballot for party elections.  

Parties need to get a fairly large percent of the vote just to enter parliament - 5%. This helps explain why Germany is almost always ruled by coalition governments, and perhaps the main reason why markets were somewhat shaken this morning. There was a hope among many that Merkel's success was sweeping enough for her Christian Democrats to have a majority to govern outright. She came close, but not close enough to avoid a period of temporary uncertainty.

The extent of that uncertainty however, has greatly diminished. Many different parties are expected to vie for a seat in the coalition government, and are expected to negotiate for various concessions from Merkel's own party. However, with Merkel firmly installed for a third term – and considering the robust majority her party was able to garner – rule by a coalition of more liberal parties is all but unthinkable. 

Investment ideas

This is largely very good news for German companies. Siemens (SA), one of the most important bellweathers of the German economy, has just finished a management shake-up after Merkel pressed for one. Falling sales there made the prospect of rising taxes or environmental costs all the more frightening. Some analysts are upgrading their outlook for the firm – Finviz lists an average ' buy rating' while Zacks is still listing the stock as a 'hold' (see below). 

Europe's second largest economy, France, has had an excellent summer as well. The country surprised the world and bolstered European indices by releasing a  higher-than-expected Purchasing Managers Index (PMI). PMI looks at a number of "sub-indicators" of economic health like how much businesses are adding to things like staff and inventory.

Read more from Kapitall about France: France’s Recovery: Time to Look at Eurozone Stocks?

France's PMI is now over 50 for the first time in 19 months – the benchmark a country must pass before it is considered to be in expansion. The upgrade may prompt economists to augment France's GDP projections as well. 

We compiled a list of French and German stocks with average 'buy' ratings. Are they poised for future growth? Use the interactive charts below to begin your own analysis. 

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1. CGG SA ( CGG):  Provides geophysical equipment and geophysical services for the oil and gas exploration and production industry in North America, Central and South Americas, Europe, Africa, the Middle East, and the Asia Pacific. Market cap at $4.46B, most recent closing price at $25.09.
 

 

2. Deutsche Bank AG ( DB): Provides investment, financial, and related products and services. Market cap at $47.61B, most recent closing price at $47.69.
 

 

3. EDAP TMS SA ( EDAP): E ngages in the development, production, marketing, distribution, and maintenance of minimally invasive medical devices for the treatment of urological diseases. Market cap at $50.21M, most recent closing price at $2.52. 
 

 

4. SAP AG ( SAP): Provides business software primarily in Europe, the Middle East, Africa, the Americas, and the Asia Pacific Japan region. Market cap at $88.29B, most recent closing price at $74.01.
 

 

5. Siemens AG ( SI): Operates in the industry, energy, and healthcare sectors worldwide. Market cap at $102.57B, most recent closing price at $121.66.
 

 

6. Sanofi ( SNY): Engages in the discovery, development, and distribution of therapeutic solutions to improve the lives of everyone. Market cap at $135.35B, most recent closing price at $51.05.
 

 

7. Total SA ( TOT): Operates as an integrated oil and gas company worldwide. Market cap at $128.95B, most recent closing price at $56.63.
 

 

 

( List compiled by James Dennin, a Kapitall writer. Analyst ratings and all other financial data sourced from Finviz, except those in the chart, which are sourced from Zacks Investment Research.)

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