Two Paths to Germany

 | May 24, 2013 | 10:00 AM EDT
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While the eurozone is largely mired in recession, one standout is Germany. True, its growth rate is small, but at least it is not in negative territory like so many of its European neighbors. Investors should look at two stalwarts of the German economy, BASF (BASFY) and Siemens AG (SI). Taking a piece of the German economy seems a good idea, and you would be hard pressed to find two better investment opportunities than these companies.

I choose companies based on what my guru strategies say, which I created based on the writings of some of Wall Street's greatest thinkers. BASF and Siemens are both favored by these strategies.

BASF is one of largest and most diversified chemical companies. Besides size, one of its differentiators is its upstream and downstream operations. For example, it does its own oil and gas exploration and production, which gives it a secure pipeline of products, as well as the ability to hedge its most important raw materials. It even operates gas pipelines that transport natural gas to a variety of European public utilities. This is an unusual company with great marketing, technical and production muscle.

The guru strategy I base on James P. O'Shaughnessy's writings is very positive about BASF. This strategy looks at BASF's large market cap ($89 billion), strong cash flow per share ($11.59), large number of outstanding shares (918 million) and large annual sales ($100 billion). The strategy then takes companies that pass these four tests and picks the top 50 based on their dividend yield. BASF's 3.54% yield places it in this top-50 cohort.

Siemens, also with an $89 billion market cap, is a giant in the technology, electronics and electrical engineering sectors. A classic conglomerate, its business is primarily focused on industrial companies, health care and energy. Siemens is a standout for its scope and breadth, and its proven ability to operate in a variety of markets.

My Peter Lynch-based strategy is high on Siemens. The emphasis of this strategy is the PEG ratio, which is price-to-earnings relative to growth, and is a measure of the cost of growth to the investor given the stock's current price. A PEG of 1.0 or less is acceptable, and Siemens' is a strong 0.62. Another plus is the excellent job Siemens is doing managing its inventory.

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we like this chart here, it appears ready to move higher. BOUGHT BZUN OCT 35 CALL AT 3.40
Large-cap, high-quality McKesson (MCK) is too cheap now, at $147.51 or so. The stock hit $243.60 more than 2.5...



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