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3 Ways to Buy Into a German Recovery

Don't shun the financial stronghold of the eurozone

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If it’s the eurozone crisis that is scaring you off rather than the pink sheet listing, however, rest assured that Bayer is insulated from the crisis. It’s riding eight straight quarters of year-over-year revenue increases, and fiscal 2011 earnings are set to hit the highest mark since before the financial crisis of 2008.

And Bayer, like many health care stocks, has a recession-proof appeal. Its consumer health unit — represented by big brands like Bayer aspirin and Aleve — provides reliable revenue beyond its prescription drug and medical products portfolio.

But despite stability and a decent 2.3% yield, investors have overlooked Bayer. That’s a shame — especially considering that up until the market declines of mid-2011, it had been handily outperforming drug majors like Pfizer (NYSE:PFE) and Merck (NYSE:MRK).

Looking forward, growth potential from new treatments like blood clot preventer Xarelto could add some pop to shares. Business conditions across Bayer’s non-pharmaceutical divisions remain strong, and long-term investors looking for a low-risk way to tap into Germany’s rebound should consider this health care company.

Last but not least is perhaps the purest — and also the most diversified — way to play Germany: the iShares MSCI Germany Index ETF (NYSE:EWG). Top holdings are Siemens and Bayer, as well as chemical giant BASF (PINK:BASFY) and tech firm SAP AG (NYSE:SAP).

Here is where you have to have a little more confidence in Germany’s domestic economy. But it shouldn’t be too tough of a sell. In April, leading economic forecasters increased their GDP estimates for Germany. That’s because a weaker euro is helping exports, particularly German automobiles and machinery being sent to China.

Also a plus is Germany’s close proximity to cheaper labor markets in Eastern Europe, and smart labor laws that allowed government funds to help retain skilled workers at top German firms during the worst of the economic downturn. Pure capitalists would argue that layoffs can be a form of “creative destruction,” but the plus side of greater retention is that it preserves institutional knowledge and reduces the need for training of new employees when a company re-enters growth mode.

EWG actually has come roaring back almost 15% year-to-date, so there’s already signs of life in this fund. If all it manages to do is reattain the 52-week high set around this time last year, the iShares Germany ETF will deliver investors a nice 33% gain — at a reasonable 0.51% expense ratio with a roughly 3% dividend based on last summer’s distributions.

Jeff Reeves is the editor of, and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace??.com or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff Reeves did not own a position in any of the investments named here.

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