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Can Germany's Political Crisis Stall EU Recovery? 5 Picks

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On Sunday, Eurozone’s economic powerhouse Germany was pushed into a political crisis after negotiations aimed at forming a new government broke down. This represents the gravest crisis of Chancellor Angela Merkel’s tenure and is threatening to derail an economic recovery which has come as a surprise to several observers across the world.

The current impasse may well lead to an extended period of political instability. However, Germany’s prominent political parties may be better off avoiding fresh elections, since they are likely to produce another indecisive verdict.

More importantly, Germany and the broader Eurozone continue to show signs of economic resilience. This is possibly why Europe’s markets have continued to notch up gains this week, choosing to ignore the current crisis. Investing in stocks from the Eurozone, therefore, continues to make for a prudent choice.

Germany Faces Political Impasse, Merkel Prefers Fresh Elections

Coalition negotiations among Germany’s leading parties broke down on Sunday, plunging the country into a political crisis. The business friendly Free Democrats or FDP party opted out of discussions with chancellor Merkel’s CDU/CSU, leading her to comment on Monday that she would prefer to face fresh elections rather than head a minority government.

The final decision regarding the fate of Germany’s incumbent government lies with President Frank-Walter Steinmeier. He will first attempt to break the deadlock which talks has reached, failing which he will likely appoint a chancellor to head a minority government or take steps required to hold fresh elections.

Eurozone Growth Broad-Based, Germany’s Economy Remains Strong

Germany’s current political impasse is an outcome of the split verdict delivered by elections held on Sep 24. Even though Merkel’s CDU/CSU emerged as the single largest party, her party’s vote share declined alarmingly. Now, the breakdown of coalition talks threatens to derail the Eurozone’s spectacular economic recovery.

But such fears may have been blown out of proportion. Speaking in Brussels on Monday, ECB President Mario Draghi described the region’s economic expansion as “solid” and the most broad based since the economic bloc’s formation. Draghi also said that based on data received recently, the region’s growth would continue unabated in the near term. The only cause for concern was sluggish wage growth. However, Draghi was of the opinion that wage increases would come into force soon as a result of a decline in unemployment levels.

Meanwhile, Germany’s Bundesbank said on Monday that the country’s economy was entering the last section of the year on a firm footing. A considerable pickup in industrial activity was leading to a shortage of workers needed to fulfil orders. This recent evaluation of the largest economy in Europe indicates that Germany has remained largely unaffected by the recent political crisis. 

Our Choices

Eurozone’s economy has posted the most remarkable recovery witnessed in the post-crisis period. Despite political concerns, the most recent of which is the breakdown of coalition talks in Germany, such a trend is likely to continue in the near future.

As far as Germany itself is concerned, the country’s economy is entering the last few months of this year on a high. Given this backdrop, it makes sense to add stocks from the Eurozone to your portfolios. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. 

We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM Score.

Telekom Austria Aktiengesellschaft TKAGY is the principal provider of fixed, mobile, data and Internet services in Austria.

Telekom Austria has a VGM Score of A. The company has expected earnings growth of 14.7% for the current year The Zacks Consensus Estimate for the current year has improved by 20.8% over the last 30 days. Telekom Austria has returned 57.7% year to date, outperforming the industry it belongs to, which has gained 2.2% over the same period. The stock has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Glanbia plc GLAPY engages in the manufacture and distribution of dairy and nutritional food products. The company is headquartered in Kilkenny, Ireland.

Glanbia has Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 3.5% for the current year. The Zacks Consensus Estimate for the current year has improved by 12.6% over the last 30 days. Glanbia has returned 13.9% year to date, outperforming the industry it belongs to, which has lost 50.5% over the same period.

Peugeot S.A. PUGOY is involved in the automobile, automotive equipment and related financial businesses. Its operations are conducted within Europe as well as in other countries and regions. The company’s headquarters are in Rueil-Malmaison, France.

Peugeot has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 62% for the current year. The Zacks Consensus Estimate for the current year has improved by 2% over the last 30 days. Peugeot has returned 31.9% year to date, outperforming the industry it belongs to, which has gained 9% over the same period.

Deutsche Lufthansa Aktiengesellschaft DLAKY is an aviation company which operates within Germany and on an international scale. The company’s headquarters are in Cologne, Germany.

Lufthansa has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 6.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.5% over the last 30 days. Lufthansa has returned 161.8% year to date, outperforming the industry it belongs to, which has gained 11.5% over the same period.

NXP Semiconductors N.V (NXPI - Free Report) designs and manufactures High Performance Mixed Signal semiconductor solutions to meet the requirements of systems and sub-systems in its target markets. The company is based in Eindhoven, Netherlands.

NXP Semiconductors has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for the current year has improved by 4.8% over the last 30days.

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