Deutsche Bank (DB): A smart defensive pick

By Paul Goodwin, Editor of Cabot China & Emerging Markets Report
From Cabot Wealth Advisory 11/15/12 Sign up for free Cabot Wealth Advisory e-newsletter

My stock pick for today—Deutsche Bank (DB)—is specially tailored for the kind of trying times we’re having in the market. It’s a big company (market cap over $38 billion and $2.8 trillion in assets), the largest financial institution in Germany. It pays an annual dividend yield of 2.2% and a P/E ratio of about 11.

Obviously there’s no mistaking Deutsche Bank for a growth stock. On the other hand, DB has been in a long downtrend since it topped out at 146 back in April 2007. That’s not exactly unexpected for a company that was up to its armpits in heavily leveraged mortgages during the Housing Bubble. And it doesn’t help that the bank, although not heavily exposed to Greece, has lots of exposure to Italy and Spain, and is a major player in the eurozone and dependent on what happens there.

The investment thesis on Deutsche Bank is that it’s a relatively cheap play on a successful resolution to the eurozone/Greek debt crisis. The stock has bounced from a low of 27 in July to 43 in recent trading. DB is riding its 50-day moving average higher, defying the downward pull of the market in the last few weeks. This kind of relative strength is an important sign that investors see DB as a valid counterplay.

I think a small bet on DB, with a tight stop at 39 and a resolve to wait out the European debt crisis, could pay off well. I have the stock in the portfolio of the Cabot China & Emerging Markets Report as a defensive pick as we wait patiently for markets to chew their way through this period of dodgy global growth and European weakness.

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