We recently published a list of 12 Best German Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where SAP SE (NYSE:SAP) stands against other best German stocks to buy according to hedge funds.
Germany’s economy is facing continued weakness. According to a report published by Roland Berger, the 0.1% contraction in 2023 and the 0.2% in 2o24 will only be countered by a 0.4% projected growth in 2025. While manufacturing orders are recovering modestly since June last year, business sentiments are still low and the industrial production for November was down 3,1% year-over-year. Unemployment also reached 2.81 million in December 2024, which was a 170,000 increase as compared to the same period last year. This pushed the unemployment rate to 6%. Inflation is now expected to average 2% in 2025, which is still down from the 2.2% figure from 2024.
Earlier on March 6, Chris Verrone, Strategas, joined CNBC’s ‘Fast Money’ to express his bullish outlook on the European market. He highlighted a shift in global cyclicality eastward and observed that the European industrials are achieving new highs. Verrone emphasized that the European banks have shown strength over the past 18 months but despite such trends, investors are still not heavily leaning towards European equities. He cited the German ETF under the name of EWG to support his stance, as EWG broke a 20-year high which indicated its departure from prolonged secular stagnation particularly within banks and industrials. However, he did note that energy and basic resources are not showing the same momentum.
The conversation also covered the fact that investors have been overweight in US large-cap tech stocks over the past 12 to 13 years. Verrone relayed that observed extreme bearishness towards the European market as of December 2024, when he visited the region. He particularly noted that peripheral European markets, which include countries like Italy and Spain, have been leading. Whereas Germany has lagged. While Verrone mentioned that he heard Christine Lagarde, President of the European Central Bank, expressed pessimism about the European economy herself during the world economic forum in Davos, he still maintains his bullish outlook. He thinks that the European economic data is improving and global cyclicality has not been extinguished.
Our Methodology
We used the Finviz stock screener to compile an initial list of top German stocks. We then selected 12 German stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q4 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A data centre room with cloud technology, illustrating the enterprise application software services.
SAP SE (NYSE:SAP)
Number of Hedge Fund Holders: 27
SAP SE (NYSE:SAP) delivers enterprise software solutions that empower businesses to optimize operations and drive digital transformation through its integrated ERP, HR, supply chain, and technology platform offerings. Its solutions are designed to enhance efficiency, facilitate data-driven decisions, and foster sustainable business practices across diverse industries.
The company’s Cloud Revenue segment expanded by 27% year-over-year in Q4 and drove double-digit total revenue growth for the third consecutive quarter. For the full year, cloud revenue grew by 26% in 2024, which was fueled by the strong performance of the Cloud ERP suite. This suite saw a 34% increase and represented 84% of total cloud revenue. Major companies like BP, Total Energies, and BASF use SAP SE’s (NYSE:SAP) cloud offerings for their digital transformations.
The company’s total cloud backlog reached a record high of €63 billion in 2024, which was up 40% year-over-year. SAP SE (NYSE:SAP) is further enhancing its cloud offerings by integrating AI capabilities and simplifying customer adoption through flexible licensing options and strategic migration incentives. The company is also using its position in business data and process knowledge to develop innovative AI-driven solutions that enhance the value proposition of its cloud offerings and position the company for accelerated double-digit total revenue growth through 2027.
Polen Global Growth Strategy is highly positive about the company’s performance and long-term potential. It stated the following regarding SAP SE (NYSE:SAP) in its Q3 2024 investor letter:
“In the third quarter, the top relative and absolute contributors to the Portfolio’s performance were MSCI, SAP SE (NYSE:SAP), and AON. SAP reported a good quarter, reflecting solid cloud adoption and disciplined execution around their transformation program, which will help the company focus resources on their most strategic growth opportunities. We view SAP as one of the more resilient software business models as it is an essential part of their customers’ day-to-day operations and cannot easily be turned off or scaled back. Given its attractive market position, vast partner ecosystem, balanced growth across new and existing customers, high recurring revenues, and improving margin profile, we think SAP is well-positioned to continue delivering at least mid-teens earnings growth for many years.
We modestly trimmed our position in SAP, though it remains among our largest holdings. When we reduced the position, shares had appreciated nearly 40% YTD due to strong business performance accompanied by multiple expansions. While our conviction in the business remains high, we felt it was appropriate to taper back what had become a very large position, especially with the valuation at the upper end of its range.”
Overall, SAP ranks 3rd on our list of best German stocks to buy according to hedge funds. While we acknowledge the growth potential of SAP, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SAP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.
