Opportunity Abounds after Weak DAX Week

Figures in this article reflect prices as of market close on 12/12/2014, unless otherwise noted.

The Major Indices

It was the first disappointing week for the indices in some time. The DAX — the 30 largest companies on the Deutsche Börse — fell steadily throughout the week to close at 9,594.73, for a 4.6% drop. The other major indices saw similar losses for the week, including the MDAX (the next 50 largest German companies, excluding tech — down 4.3%), the TecDAX (the 30 largest tech companies —down 3.4%), and the HDAX (comprised of all companies on the DAX, MDAX, and TecDAX —down 4.8%). The SDAX (the 50 small- and mid-cap companies just under the MDAX in size) wasn’t hit as hard, dropping a relatively modest 2.7%, and all the German indices fared better than the EuroStoxx 50 (an index of 50 large-cap Eurozone stocks), which lost 6% over the course of the week.

The Upside-down Market

I suppose it stands to reason that after rising for months despite tepid economic news, the major indices fell during a week of fairly upbeat news. For example, on Monday, chemical trade group VCI upgraded its forecast for chemical production and sales growth to 1.5% for both 2014 and 2015. Surprisingly, stocks of chemical companies like BASF (ETR: BAS)(FRA: BAS) and Bayer (ETR: BAYN)(FRA: BAYN) dropped slightly, along with most other HDAX companies.

Likewise, on Tuesday, data released by the German Federal Statistical Office showed Germany’s trade surplus widening in October, as exports were down a seasonally-adjusted 0.5% while imports dropped a seasonally-adjusted 3.1%. However, in unadjusted terms, Germany exported a record-high 103.9 billion euros of goods in October.

Carsten Brzeski, Chief Political Economist at ING, said these figures show more evidence of Germany’s economic rebound. He further suggested that the recent decline of the Euro “is probably the best thing that could happen” to Germany. But you wouldn’t know it to look at the stocks of big exporters like Volkswagen (ETR: VOW)(FRA: VOW) or Siemens (ETR: SIE)(FRA: SIE), both of which dropped on Tuesday, again along with most other HDAX companies.

In other news, the German Economy Ministry reported that industrial production increased in October for the second straight month, another sign that conditions in Germany are continuing to improve. It’s looking to me like an excellent time to invest in Germany generally, as all signs seem to be pointing to continued recovery. But you wouldn’t know it from the markets.

TOPS and FLOPS for the Week (This week? Mostly FLOPS)

FLOP: Shares of Airbus (ETR: AIR)(FRA: AIR) plunged more than 10% on Wednesday, and nearly 5% on Thursday as the world’s second-largest plane manufacturer announced turbulent times ahead. Not only did Airbus predict flat profits for 2016, it also announced further cuts in production of its A330 aircraft on top of already-scheduled cuts to just nine aircraft a month. There was also no positive news about the poorly-selling A380. All this led to the stock’s biggest one-day drop in more than six years. The stock has already fallen nearly 30% this year, but in my opinion it’s still no bargain: with sales in a slump possibly until 2017, when new models of the A330 family are released, investors may have a long wait to see a return on their investment.

FLOP: Steelmaker Salzgitter AG (ETR: SZG)(FRA: SZG) saw its stock drop exactly 2.98% for two days in a row this week, as analysts from Goldman Sachs downgraded it from “hold” to “sell.” This despite an announcement by the company on Tuesday that insurance would cover any potential losses from the cancelled South Stream gas pipeline project.

FLOP-TOP-FLOP: Carl Zeiss Meditec AG (ETR: AFX)(FRA: AFX) had a volatile week after announcing on Monday that it planned to increase research and development spending, which would affect short-term performance. The stock was the big loser of the day, dropping 4.15%. However, it posted a currency-adjusted 3% growth in earnings this fiscal year and an impressive 13.3% earnings before taxes (EBIT) margin, which may explain why the stock was one of the top HDAX winners on Tuesday and Wednesday before dropping again on Thursday. This may be an attractive long-term buying opportunity, though, as the company expects the EBIT margin to remain in the 13% to 15% range until at least 2019.

FLOP: Wind turbine manufacturer Nordex AG (ETR: NDX1)(FRA: NDX1) was Tuesday’s big loser, dropping more than 5% on no apparent bad news. In fact, the company had just announced an order for 15 turbines for theTurkish Kiyikoey wind farm, which would also come with a ten-year service contract. The drop may represent a buying opportunity.

Have a great weekend!