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Thứ Tư, 18 tháng 2, 2015

Strengthening U.S. Dollar Presents Remarkable Foreign Opportunities - SAP ... - Seeking Alpha (registration)

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  • A strengthening U.S. dollar and foreign exchange market volatility create great international investments.

  • SAP should be able to leverage financial markets, and in particular the weak euro, to foster growth.

  • SAP’s value propositions have been very stable and present a very good outlook for 2105, but its stock price has tumbled.

Welcome to part 8 in a series of articles exploring how currency markets have shifted in the past 6 months and the newly created investment opportunities. As most investors will note, the foreign exchange markets have experienced significant volatility, with the US Dollar making large gains against most currencies.

If this is the first article you are reading, please read Part 1, which explores exchanges rates and explains a concept called Translation Effect. For other great investment opportunities, Part 2 looks at Anheuser-Busch InBev (NYSE:BUD), Part 3 at GlaxoSmithKline (NYSE:GSK), Part 4 at Novartis (NYSE:NVS), Part 5 at SoftBank (OTCPK:SFTBY), Part 6 at Toyota (NYSE:TM), and Part 7 at BHP Billiton (NYSE:BHP).

Part 8 will explore the investment opportunity in SAP SE (NYSE:SAP). The German technology firm is well positioned to leverage global IT trends and a favorable exchange rate to bolster profits. Despite healthy sales growth in 2014 especially in the fourth quarter, SAP's market value has steadily decreased.

US Dollar Gains Value on the Euro

Over the past six months, the US dollar has made consistent gains against the Euro. Late summer exchange rates averaged $1 US Dollar to 0.75 Euro, since then the Dollar has gained value to about 0.89 Euro.

(click to enlarge)

Source: StockCharts.

Everything becomes cheaper for US companies operating in Europe. For example, paying for materials and labor in Euros now cost less in US Dollars terms than it did just six months prior. The opposite is true for European companies operating abroad - everything is more expensive. However, when the companies have to convert profits back to their functional base currencies the inverse happens. US companies that have made profits in Euros are now worth less in Dollars, and European companies the have Dollar profits are worth more Euros.

SAP Geographic Opportunity

For a company like SAP this is significant, most of their costs of development and administration is in Euros, the cheaper currency. However, a vast majority of their sales occur outside of the Eurozone with the largest geographic customer being the US.

Source: SAP Investor Relations .

The United States currently makes up over 25% of SAP's customer base. Other stronger currencies including the Japanese Yen, Canadian Dollar, British Pound, and Swiss Franc also account for a large share of SAP's customer base. Germany and the rest of the Eurozone only account for a little over 30% of SAP's customer base. As a result, SAP will convert profits from stronger currencies back into Euros to continue to invest in their business with more Euros.

Current and Future Growth

In 2014, SAP was able to strategically grow two key product lines - cloud services and support. While software sales remained stable on a quarter-over-quarter basis. The growth translated to a 7% increase in revenue.

Source: SAP Investor Relations .

In order to create this growth, SAP had to make significant investments and incur increasing expenses. The result was a slight decrease in operating profit for fiscal year 2014. The investor community has subsequently responded negatively to this news. However, the current growth profile for 2015 should allow SAP to continue to leverage its unique position as a Euro-based company selling to customers in countries with stronger currencies. The competitive advantage will translate to increasing profits and strong long-term prospects by leveraging their cost advantage.

SAP's Opportunity

SAP's stock has seen a large decline in value due to the current economic downturn in the Eurozone as well as the dismal performance posted by SAP for the fourth quarter of 2014. Since trading neared $80 per share, SAP's ADR stock has declined almost $14 per share to $66.

(click to enlarge) Source: StockCharts.

Investors should take note of the short- and long-term technical indicators that look very favorable to SAP's. Upward trends in both relative strength and convergence divergence indicators show favorable upside pressure in 2015.


SAP offers a promising opportunity for US investors looking to expand their foreign portfolios and leverage the strengthening US dollar. SAP will continue to make profits in stronger currencies, convert them back to the weaker Euro and investment in growth opportunities throughout 2015. SAP's stock is well poised to rebound as this growth occurs.

Additional disclosure: The author is currently long the following ETFs which may have exposure to one of the stocks mentioned in this article: DVY, TNA, SPXL, YINN, INDL, and EEM.

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