DB has also gone toe-to-toe with Goldman Sachs in terms of stock performance over the last six months. Here’s why I think it will continue to do so:
First, DB reported blowout numbers last week. First-quarter revenue rose by 21% and net profit rose by an eye-popping 55%, both numbers fueled by sharp increases across a wide range of businesses. DB’s return-on-equity (ROE) of 40% blew past its own internal target of 25%. That’s not only a 10x increase compared to the 4% it made in 2002, but also bests Goldman Sachs’ ROE of 38.8%, reported just last week. And DB does not rely on volatile trading profits as much as Goldman Sachs, making it a much safer bet. Yet amazingly, DB still trades at a PEG (price earnings-to-growth) ratio of less than 1 (anything less than 1 screams buy). That’s about a 40% discount to the industry average. And DB also recently received a tip of the hat from U.S. rival investment bank Bear Stearns when it upgraded this Teutonic champion to "outperform" last week.
Second, DB’s stock has been a strong and steady performer for shareholders over the past year, as has the overall German market. I’ve written about the strengths the recovery of the Japanese stock market in my free e-letter, The Global Guru. Yet despite its sluggish reputation, Germany has actually outperformed Japan by more than 5% over the last six months. And Germany versus the S&P 500? No contest, with Germany trouncing the broad U.S. averages by more than 3 to 1 over the same period.
Finally, holding DB in your portfolio is a terrific hedge against the U.S. dollar’s relentless decline. Because DB is a euro-based stock — even though the stock you’ll buy is quoted in U.S. dollars — every time you hear about the "bad news" of the falling dollar, it’ll be "good news" for you. Just this weekend, Warren Buffett revealed that he intends to buy more companies overseas because he thinks the dollar is destined for a downward spiral. (He himself is betting against the dollar to the tune of $14 billion). How much can this matter? Domestic German investors are up about 11% in 2006. U.S. dollar-based investors in the German market are up an even more impressive 18%. The difference is due purely to dollar weakness.
So buy Deutsche Bank (DB) at market today, and place your stop at $114.90. If you want to play the options, buy the October $125 calls. (DBJE.X)
PORTFOLIO UPDATE
To make room for fast-moving Deutsche Bank, let’s close our position in turnaround play Sony (SNE) at a profit.
The Global Bull Market Alert portfolio is roaring ahead. Brazilian airline GOL continues to soar, up over 51% in less than two months. Move your stop to $34.30. Commodity play Rio Tinto (RTP) is up over 31% (move stop to $221.40), Indian outsourcer Cognizant Technologies (CTSH) up almost 21% (move stop to $61.90), global infrastructure play ABB Inc. (ABB) up 16% (move stop up to $13.50) and Chartered Semiconductor (CHRT) is up almost 15% (move stop to $10.25) since we recommended them. It doesn’t get much better than this, so enjoy the ride.
The Wall Street Journal reported last week that China Mobile (CHL) has put in a bid of $6 billion for our takeover play Millicom (MICC). That’s a 20%+ premium to MICC’s current share price, so hold onto this one until the deal is finalized.
