Snap up these solid German stocks now

Professional investor Mark Denham picks three German stocks that should be able to grow steadily under their own steam despite a subdued economic backdrop and generate good long-term return.

Each week, a professional investor tells us where he'd put his money. This week: Mark Denham, head of European equities at Carmignac, highlights three German winners.

The combination of a global slowdown and regional turbulence has led to growth expectations for Europe in 2019 falling below the relatively unexciting long-term trend growth rate of 1.5%-2.0%. So, should we write the continent and its markets off? On the contrary: we believe that any market weakness based on these concerns creates attractive entry points for appealing European stocks. We always look for companies that can grow steadily under their own steam despite a subdued economic backdrop and generate good long-term returns. Europe has many such dependable companies.

A software star

SAP (Frankfurt: SAP) is one of the world's largest software companies; it concentrates on products to help companies manage their operations. We like software business models at attractive prices: sales are predictable and profit margins high. SAP is rolling out the latest version of its core software and our surveys of SAP clients inform us that most are likely to upgrade over the coming years. We therefore have confidence in long-term sales projections, while clients often pay a premium for the new software.

SAP is also offering its software solutions on a cloud-based subscription model rather than via selling traditional so-called on-premise licences, so more sales are now recurring. Cloud subscription revenues are growing fast. They are now as large as new licence revenues and make a significant contribution to growth. Group revenues have grown at about 9%-10% organically for the last few quarters, which is an impressive rate for such a well-established company. SAP has just increased its profitability targets for the next few years.

Profits in the pipeline

Morphosys (Frankfurt: MOR) specialises in antibody technology. It boasts many drugs at various stages of clinical development and a fast-growing product already approved for psoriasis: Tremfya. The company has published very strong data on a promising new product for a type of cancer called lymphoma and we expect to hear more details on the drug's efficacy soon, along with a timeline for approval of the product, all of which will help us assess its value. It may be possible to use the drug in other, similar illnesses, which could provide further upside. We also believe there is significant upside to market forecasts for Tremfya: the superior combination of efficacy and convenience of the product will lead to far higher sales than analysts expect.

A brand with room to run

Puma (Frankfurt: PUM) is also a compelling investment. Although it is the third-biggest global sports brand, it lags behind Nike and Adidas. Puma endured a difficult period a few years ago, with rivals gaining market share in the key running-shoe segment, for instance. But it has now turned the corner. Its investment in its performance and promoting the brand has borne fruit: over 2018, it reported 18% growth in its sales with increasing margins. Moreover, the company is now entering the North American market for basketball products, rejuvenating its women's range and investing more in its own retail outlets moves that demonstrate its commitment to future growth.

Recommended

Three stocks to provide income and growth in good times and bad
Share tips

Three stocks to provide income and growth in good times and bad

Professional investor Matthew Page of the Guinness Global Innovators fund picks three resilient stocks that should pay predictable dividends that grow…
5 Aug 2022
Share tips of the week – 5 August
Share tips

Share tips of the week – 5 August

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
5 Aug 2022
Invest in defence stocks as war goes hi-tech
Share tips

Invest in defence stocks as war goes hi-tech

The operational efficiency of defence equipment and cybersecurity is developing rapidly owing to the war in Ukraine, says Jonathan Compton. Here’s wha…
4 Aug 2022
John Wood Group: needs polish, but has plenty of potential
Share tips

John Wood Group: needs polish, but has plenty of potential

Oilfield engineer John Wood’s share price has underperformed, its prospects are solid and it looks too cheap
4 Aug 2022

Most Popular

Are UK house prices finally heading for a crash?
House prices

Are UK house prices finally heading for a crash?

The latest house price figures show a fall of 0.1% in July. With interest rates rising, inflation hitting double figures and a recession on the cards,…
5 Aug 2022
What is stagflation and what can be done about it?
UK Economy

What is stagflation and what can be done about it?

The threat of 1970s-style stagflation has returned, here’s what you need to know.
4 Aug 2022
Share tips of the week – 5 August
Share tips

Share tips of the week – 5 August

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
5 Aug 2022