We recently compiled a list of the 10 Best German Stocks To Buy Now. In this article, we are going to take a look at where SAP SE (NYSE:SAP) stands against the other German stocks.
In Germany, the economic growth is based on industry. According to Deutschland.de, Germany’s manufacturing industry contributed 26.6% to the country’s gross value in 2021. In contrast, the percentages were 16.8% in France, 18.4% in the USA, and 29% in Japan. Moreover, in 2020, manufacturing companies generated 2,096 billion euros (approximately $2.2 trillion) in revenue. The largest contributor, at 459 billion euros ($485.3 billion), was the automotive market.
According to the aforementioned research report, the manufacturing market’s export ratio in 2021 was 48.4%. Motor cars and motor vehicle parts were Germany’s most important export products in 2022, totaling 244.4 billion euros ($258.4 billion) and accounting for 15.5% of German exports, as in previous years. In this calculation, it is the value of the finished car counts, even though many parts are imported from other countries.
As per Torsten Schrimpf, Partner and International Business Centre Director at Grant Thornton in Germany, the key growth sectors in the country at present include healthcare and medical devices, plastics, and fintech. He claims that there has been an influx of financial services companies over the past few years as a result of Brexit, with many businesses setting up entities in the country or moving away from London entirely.
Nonetheless, currently, the stock market in Germany is under a lot of strain as economic sentiment weakens. The ZEW index dropped rapidly from 13.1 in October to 7.1 in November, falling far short of the 25-point one-year average. Indicating declining confidence among financial specialists, the index measuring the state of the economy also fell by 4.5 points to -91.4. Achim Wambach, a president of ZEW, commented that Germany’s economic sentiment reflects ongoing concerns about trade and political risks, especially in light of recent events in the US. These drops mark a resurgence of worries about rising tariffs and possible trade obstacles affecting European exports in the wake of Donald Trump’s victory as president of the United States. On November 5, 2024, the German DAX index fell by 0.7% in morning trading, confirming this pessimism. The euro also dropped by 0.4% versus the US dollar to a seven-month low of about 1.06, which was made worse by estimates of a stronger dollar due to Trump’s proposed trade policies.
Following Donald Trump’s presidential victory, analysts at Citigroup and ING have voiced a cautious and pessimistic outlook for Germany’s economy. According to Citigroup analysts, Donald Trump’s victory could have a negative impact on German banks because of possible adjustments to interest rates, tariffs, and U.S. financial deregulation. ING analysts also emphasized that auto tariffs might have a “particularly hard hit” on the German economy, which is highly dependent on trade with the U.S. In light of Trump’s critical views on NATO and the Ukraine crisis, this could increase economic uncertainty and erode trust metrics. ING cautioned that while tariffs would not be implemented right away, heightened concerns about trade conflicts might force Germany and the rest of the eurozone into a recession by the end of the year.
Methodology:
To compile our list of the best German stocks to buy, we first made a list of all German firms that are trading on the NASDAQ and NYSE exchanges. Then we selected 10 stocks that had the highest upside potential. The stocks are ranked in ascending order of the upside potential, as of November 15.
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 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
A data centre room with cloud technology, illustrating the enterprise application software services.
SAP SE (NYSE:SAP)
Upside potential as of November 15: 10.52%
SAP SE (NYSE:SAP) was established in 1972 by former IBM employees and offers database technology and enterprise resource planning (ERP) software to businesses globally.
SAP is a market leader in worldwide ERP software and a best-in-breed provider of enterprise resource planning. The company serves 440,000 clients in more than 180 countries, with small and medium-sized businesses accounting for about 80% of its clientele.
In predictive analytics, SAP SE (NYSE:SAP) is a prominent player. An end-to-end analytics and planning solution, SAP Analytics Cloud enables customers to delve deeply into key data sources and crucial business applications. Artificial intelligence can also be used by users to find concealed information and automate reporting.
SAP SE (NYSE:SAP) is successfully bridging the gap between AI and data. Joule, SAP’s co-pilot, can sort and extract valuable insights from existing data to help customers complete planning and analytics more quickly. Users can ask the co-pilot simple inquiries, and it will provide them with intelligent, data-driven responses. The assistant also assists users in creating data visualizations and data models using complex calculations.
SAP SE (NYSE:SAP) maintained its strong business momentum in the third quarter of 2024. The current cloud backlog grew by 29% at constant currency and by 25% YoY to €15.38 billion ($16.2 billion). About one percentage point of that growth rate was attributable to the acquisition of WalkMe. Cloud ERP Suite revenue rose by 34% YoY to €3.64 billion ($3.85 billion) and up 36% at constant currencies, generating a 25% increase YoY in cloud revenue to €4.35 billion ($4.6 billion) and a rise of 27% at constant currencies.
SAP SE (NYSE:SAP) is advancing business AI with ground-breaking products, including SAP Knowledge Graph. AI use cases accounted for a sizable portion of the company’s cloud deals in Q3.
Polen Global Growth Strategy 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 9th on our list of the best German stocks to buy. While we acknowledge the potential of SAP as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher 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.
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Disclosure: None. This article is originally published at Insider Monkey.
