Saturday

Dax Listed Companies

1 Comment July 24, 2010 – 2:44 am |   | Permalink |  Print This Post |

The German Dax is one of the leaders of the rally, closing at 6200 post stress test. There are so many “reasons” to explain this - a weak Euro (increasing exports), the Chinese flaunting their wealth by buying luxury german products, etc. Yet the FTSE was relatively dead few weeks ago despite the Sterling being at record low (partly thanks to BP), and the optimism on the Chinese does not seem to provide any boost to the Australian ASX - so the market expects the Chinese to keep buying BMWs and Mercedes but not Australian commodities? Perhaps its a generational evolution in progress, ie from producers to consumers. Regardless, we have been shorting the Dax on rallies. Our last reshort with put options were up 1k Euro Wednesday, but are currently down $700!

We read Bill Cara’s post yesterday and it gave us an idea:

Bill Cara

I have been looking at the German equity market this morning and cannot figure it out at all. Yesterday the country ETF (EWG) closed +4.0% higher, which is a huge increase. This morning the DAX index at 7:35am ET was showing a gain of +3.20%. The problem I have with that is when I look down the individual stocks in the list, I cannot determine where the strength is coming from – except for buyers of the index. What that means to me is something like a nose ring that leads the bull this way or that. Is this Mr Market or a few vested interests in control? You see, it’s hard to make up one’s mind when the data itself is so unstable.

[EDIT 9:15am ET: The data at Yahoo was incorrect. The DAX was up about +0.5%, so by assessing the changes in the individual components of the index I had presumed correctly that something was amiss. Btw, the DAX has been dropping quickly in the past few minutes as has the CAC and FTSE. Some of the big banks, especially the big three in the UK are soft here.]

So, we will dissect the components of the Dax and short companies that have risen the most and with the weakest fundamentals. This will be work in progress. In the interests of time, we will not go through all 30 top down, but will proceed as follows:

1. Look at charts: Identify companies that have gone up the most - preferably higher than pre-GFC levels. This filters out companies that are at all time lows with less to fall.

2. Go through the annual reports of these companies - find those that are most overvalued

3. Short the companies.

4. Go back to those trading at the lows, have a look at the annual report. If undervalued, long to hedge our shorts.

The rationale is to identify the “pillars” of strength within the Dax, and execute selective shorting of the most overvalued companies. We are looking for obvious overvaluations as we did in Amazon. It is amazing how we could barely find anyone shorting Amazon back in Feb to June as it rose from a PE of 54 (when we first pulled the trigger) to 70s! Perhaps most traders trade based on technicals alone, so fundamentals get overlooked until the charts confirm a downtrend. We actually think Amazon is a great company - and suspect the only way a company can have a premium PE these days are those that ARE actually great businesses. Our argument is even a great company can be shorted if overvalued. PE of 54 is a no brainer - it will take years for earnings to catch up with the price, and any setbacks along the way will be punished. Obviously at current $100 levels the valuation is not as extreme and we are less certain of being right than before.

Back to our cross sectional analysis of the Dax:

7 year chart of : (Charts taken on 24 July 2010)

1. SAP (SAP)

SAP Share Price Chart

2.  Adidas (ADS)

Adidas Share Price Chart

3. Lufthansa (LHA)

Lufthansa Share Price Chart

4. Metro (MEO)

screen-shot-2010-07-24-at-110630-am

5. Siemens (SIE)

Siemens Dax Listed Company Chart

6. Allianz (ALV)

Allianz Dax Listed Companies

Chart : Relative performance of DAX listed Companies : SAP vs Adidas vs Lufthansa vs Metro vs Siemens

Dax Listed Companies

7. Commerzbank (CBK)

Commerzbank Chart 2003-2010

8. Deutsche Bank (DBK)

Deutsche Bank Chart

9. Deutsche Borsche (DB1)

Deutsche Borse Chart

10. Deutsche Post (DPW)

Deutsche Post Chart

Chart : Relative performance of DAX listed Companies : Allianz vs Commerzbank vs Deutsche Bank vs Deutsche Borse

Dax Listed Companies

11. BMW (BMW)

BMW Share price chart

12. Daimler (DAI)

Daimler Share Price Chart

13. Volkswagen (VOW3)

Volkswagen Chart

14. Deutsche Telekom

Deutsche Telekom

15. BASF (BAS)

BAS Chart DAX Listed

16. Bayer (BAYN)

Bayer Chart

17. Beierdorf (BEI)

Beierdorf (BRF) Chart

18. E.ON (EOAN)

E.ON (EOAN)

19. Fresenius (FRE3)

Fresenius (FRE3) Chart 2003-2010

20. Fresenius Medical Care (FME)

Fresenius Medical Care Share Price Chart

21. HeidelbergCement (HEI)

Heidelberg Cement Share Price

22. Henkel (HEN3)

screen-shot-2010-07-24-at-121903-pm

23. Infineon (IFX)

Infineon Tecnology Share Price Chart

24. K + S (SDF)

K + S (SDF) Price Chart

25. Linde (LIN)

Sector: Gases. Medical gases and engineering gas services.

Market Cap: 14.9 B

PE: 25

Linde (LIN) Share Price Chart

Linde Income Statement

Linde Financial Summary

26. Man (MAN)

Man Share PRice Chart

27. Merck (MRK)

Merck Share Price Chart

28. Munich Re (MUV2)

Muench Rueckvers Share Price Chart

29. RWE (RWE)

RWE Share Price Chart

30. ThyssenKrup (TKA)

ThyssenKrupp Share PRice Chart

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This will form the backbone of our next analysis - hope it helps your analysis. Please feel free to contribute company specific analyses - price earnings, market cap, etc.

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