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Germany's Economic Woes Seem Overhyped: 4 Stocks to Buy

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Germany, Europe’s largest economy, has been plagued by a series of dismal economic reports. A ‘catastrophic’ decline in industrial production and downward revision in economic growth projections have given rise to speculations that the country is headed for a recession in the days to come.

However, strong foreign and domestic demands and steady levels of consumer confidence in the economy will lead to an economic recovery sooner than later. Meanwhile, unemployment is at record low levels, indicating tight labor market conditions. Therefore, it will not be wrong to say that Germany’s economic weakness has been blown out of proportions. Under such conditions, betting on stocks from the Deutschland seems prudent.

Economic Fundamentals Remain Intact

Fears gripped investors across the globe that Eurozone’s biggest economy is headed for a recession in the days to come. Such speculations stemmed out of a decline in the country’s industrial production by 1.9%, reportedly the biggest since August 2015. Market watchers termed the dip as catastrophic. H

owever, what needs to be realized is that the decline was caused by a 4.1% reduction in consumer goods production due to a slump in new car registrations.

The country’s car industry accounts for 20% of the industrial production and a 9.9% reduction in November wreaked havoc for industrial revenues. In the month of September, the European Union made Worldwide Harmonized Light Vehicle Test Procedure (WLTP) compulsory to check emission levels from cars.

Needless to say, car manufacturers were unprepared for such strict scrutiny and hence had to temporarily stop selling a large number of models due to certification issues. This led to a decline in automobile sales and consequently factory orders.

Analysts’ models had not taken into consideration such an impact. This led to a number of economic surprises for the country’s economy in the back half of 2018. With things in place, an economic recovery is largely expected and it is too early to write the economy off.

Unemployment at a Record Low

Per a report on Jan 4, joblessness in Germany declined to its record low in December. The metric is lingering at 5%. This also marks an extension of the unemployment rate’s five-year steady decline. Further, this depicts that companies from the country have faith in its economy.

Unemployment in Europe’s largest economy decreased to 2.26 million in December. This marks a seasonally adjusted decline of 14,000 from the previous month. Further, the metric supported Bundesbank’s outlook that growth momentum in the country will remain intact despite global economic meltdown triggered by trade war and the Brexit.

Retail Sales Surpass Expectations, Consumer Confidence to Remain High

Per the latest reports on Jan 6, Germany’s retail sales for the month of November increased a seasonally adjusted 1.4%. This marked a seven-month high for the metric and surpassed analysts’ expectation for November retail sales. Further, on a year-over-year basis, retail sales grew 1.1% in November.

Meanwhile, consumer confidence in Germany is expected to remain high in January. Market research group GfK stated in a report that it expects the metric to come in at 10.4% vis-à-vis analysts’ estimate of 10.3% in January. Economists also estimate that strong domestic demand will support the country’s growth this year.

4 Solid Stocks

An unexpected decline in auto sales in Germany due to establishment of new emission standards resulted in steep losses for industrial production. However, demand has remained robust and economic fundamentals like unemployment rate, retail sales and consumer confidence have shown strength.

In this context, we have selected four stocks that are expected to gain from Germany’s economic resilience. These four stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Daimler AG (DDAIF - Free Report) is a developer and manufacturer of passenger cars, trucks, vans, and buses.

The company is based out of Stuttgart and carries a Zacks Rank #2. The expected earnings growth is 13.11% for the current year. The stock has increased 8.2% in the past 30 days.

Voxeljet AG (VJET - Free Report) is a provider of three-dimensional (3D) printers and on-demand parts services to industrial and commercial customers across the globe.

The company is based out of Friedberg and carries a Zacks Rank #2. The expected earnings growth is 35.29% for the current year.

Infineon Technologies AG (IFNNY - Free Report) is a designer and manufacturer of semiconductors and system solutions.

The company is based out of Munich and carries a Zacks Rank #1. The expected earnings growth is 7.89% for the current year. The stock has rallied 5% in the past 30 days.

Thyssenkrupp AG (TKAMY - Free Report) is engaged in components technology, elevator technology, industrial solutions and materials services businesses across the globe.

The company is based out of Essen and carries a Zacks Rank #2. The expected earnings growth is more than 100% for the current year. The stock has gained 5.9% in the past 30 days.

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