A DAX share that is safe even if our leading domestic index drops another 20%? This is of course connected to a concept: a margin of safety. If the valuation has already fallen so low that a second sale only reveals an even greater discount, that is sometimes an exaggeration.
I still believe that Fresenius (WKN: 578560) is one of those stocks. The Dividend Aristocrat is not very popular with investors. In addition, recent years have shown that the share price could consistently fall lower, contrary to many bets. But: A bottom could be in sight. Let’s think along those lines.
DAX share: down, even if the leading index falls 20%?
What makes the Fresenius DAX stock appear so attractive and conservative today is the fundamental valuation situation. Dividend Aristocrat is currently valued at a share price of EUR 24.50 with a P/E of around 8 and a dividend yield of 3.7%. If it were to drop 20% again: what would be left?
The dividend yield would approach 5%. At the same time, the price-to-earnings ratio would probably only be 6. To me, that would be too much of a discount for a defensive, essentially non-cyclical dividend stock. Even during the corona pandemic, the operational numbers were actually very stable, with the exception of minor bumps.
A price-earnings of 6 for the Fresenius DAX share would probably be more of a short-term affair. Also, 5% dividend yield is a lot for a dividend aristocrat with a 30% payout ratio. I would definitely smell the earth here. Although realistically I can already see him.
In the worst case scenario, Fresenius could see sharply rising interest rates and high debt levels eat away at earnings per share. stock up. It seems to me to be the risk that the market will increasingly price in. Moderately rising interest rates, on the other hand, should have long ago been priced into this favorable valuation target and only in the dividend quality.
The DAX share Fresenius is already too cheap for my taste. Even fundamental indicators such as a price-earnings ratio or dividend yield point to a significant discount. In general, I’m more inclined to think that a 20% gain is more likely than another selloff. In any case, if I had to choose a candidate who would avoid a negative performance in the future, my choice would fall on this name.
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Vincent owns shares in Fresenius. The Motley Fool recommends Fresenius.