Debt Crisis: German Bonds Have Worst Day on Record

Germany, the stronghold of the European Union, just had one of its worst bond auctions ever. Total bids at the auctions came to 3.9 billion EUR vs. 6 billion EUR issued. Has the debt crisis finally spread to the markets of Berlin?

German bond yields typically go lower on risk off days, which makes today’s auction a rare event. The low returns of 2% annually over 10 years simply wasn’t enough to lure investors who still aren’t sure how the debt crisis will play out.

“That meant the central bank had to pick up 39 percent of the 6 billion euros ($8 billion) of debt Germany had hoped to sell after commercial banks bought just 3.644 billion euros of the issue,” reports the Huffington Post.

Furthermore, “Bund futures, the euro and European stocks fell after the auction, with Germany’s 10-year debt costs rising above equivalent U.S. yields for the first time since early October.”

Flee from European Bonds

Some are saying that it has been coming to this for a while now. Europe, with all the risk associated with their sovereign debt crisis, has been scaring investors away. Even the Union’s strongest member can’t maintain investor confidence like it used to.

In general, the fear is that the debt crisis which swept up Greece, Italy and Spain will begin to drag down the EU powerhouses, like France, Belgium, and Germany. Germany’s future becomes especially worrisome as the country seems increasingly likely to underwrite the debt of the euro zone’s struggling states.

Investing Ideas

Germany is seeing less enthusiasm for its debt. As investors begin to flee Europe altogether, many may be wondering how this will effect bonds and stocks back in the United States.

So, which companies stand to benefit from a declining Euro currency?

For ideas, we went back in time, and collected price data on thousands of stocks. We identified the companies that performed best during times of Euro weakness.

The time intervals we used for our calculation (i.e. time intervals when the Euro declined):

7/14/2008 – 11/17/2008
11/23/2009 – 5/31/2010
4/25/2011 – 10/3/2011

All of the names mentioned below outperformed the market during these three time periods. Of course, past performance is no guarantee of future results, so only use this list as a starting point for your own analysis.

History suggests these companies do well in times of a raffling Euro currency. Do you think history will repeat itself?

List sorted by the average alpha vs. the S&P 500 index.

1. Dollar Tree, Inc. (DLTR, Earnings, Analysts, Financials): Operates discount variety stores in the United States and Canada. Between 07/14/2008 and 11/17/2008: Price changed from $22.26 to $25.03, a price return of 12.44% (alpha of 43.18%). Between 11/23/2009 to 06/01/2010: Price changed from $32.73 to $41.13, a price return of 25.66% (alpha of 28.88%). Between 04/25/2011 and 10/03/2011: Price changed from $56.93 to $73.68, a price return of 29.42% (alpha of 47.1%). [Average Alpha: 39.72%]

2. Transcat Inc. (TRNS, Earnings, Analysts, Financials): Engages in the distribution of handheld test and measurement instruments, as well as provides calibration, repair, and weighing system services. Between 07/14/2008 and 11/17/2008: Price changed from $6.52 to $7.4, a price return of 13.5% (alpha of 44.23%). Between 11/23/2009 to 06/01/2010: Price changed from $5.66 to $7.25, a price return of 28.09% (alpha of 31.3%). Between 04/25/2011 and 10/03/2011: Price changed from $9.79 to $11.45, a price return of 16.96% (alpha of 34.63%). [Average Alpha: 36.72%]

3. Winmark Corp. (WINA, Earnings, Analysts, Financials): Operates as a franchisor of four retail store concepts that buy, sell, trade, and consign merchandise. Between 07/14/2008 and 11/17/2008: Price changed from $14.96 to $14.91, a price return of -0.33% (alpha of 30.4%). Between 11/23/2009 to 06/01/2010: Price changed from $21.79 to $30.93, a price return of 41.95% (alpha of 45.16%). Between 04/25/2011 and 10/03/2011: Price changed from $40.73 to $44.93, a price return of 10.31% (alpha of 27.99%). [Average Alpha: 34.52%]

4. Luminex Corporation (LMNX, Earnings, Analysts, Financials): Develops, manufactures, and sells proprietary biological testing technologies and products for the life sciences and diagnostic industries in the United States. Between 07/14/2008 and 11/17/2008: Price changed from $20.45 to $22.58, a price return of 10.42% (alpha of 41.15%). Between 11/23/2009 to 06/01/2010: Price changed from $13.91 to $17.08, a price return of 22.79% (alpha of 26%). Between 04/25/2011 and 10/03/2011: Price changed from $18.75 to $21, a price return of 12% (alpha of 29.68%). [Average Alpha: 32.28%]

5. O’Reilly Automotive Inc. (ORLY, Earnings, Analysts, Financials): Engages in the retail of automotive aftermarket parts, tools, supplies, equipment, and accessories in the United States. Between 07/14/2008 and 11/17/2008: Price changed from $22.75 to $23.19, a price return of 1.93% (alpha of 32.67%). Between 11/23/2009 to 06/01/2010: Price changed from $39.24 to $50.62, a price return of 29% (alpha of 32.21%). Between 04/25/2011 and 10/03/2011: Price changed from $58.07 to $64.97, a price return of 11.88% (alpha of 29.56%). [Average Alpha: 31.48%]

6. Hershey Co. (HSY, Earnings, Analysts, Financials): Engages in manufacturing, marketing, selling, and distributing various chocolate and confectionery products, pantry items, and gum and mint refreshment products worldwide. Between 07/14/2008 and 11/17/2008: Price changed from $30.81 to $31.37, a price return of 1.82% (alpha of 32.56%). Between 11/23/2009 to 06/01/2010: Price changed from $34.7 to $46.46, a price return of 33.89% (alpha of 37.1%). Between 04/25/2011 and 10/03/2011: Price changed from $55.94 to $58.32, a price return of 4.25% (alpha of 21.93%). [Average Alpha: 30.53%]

7. National Beverage Corp. (FIZZ, Earnings, Analysts, Financials): Develops, manufactures, markets, and distributes beverage products in the United States. Between 07/14/2008 and 11/17/2008: Price changed from $5.42 to $5.89, a price return of 8.67% (alpha of 39.41%). Between 11/23/2009 to 06/01/2010: Price changed from $8.37 to $9.97, a price return of 19.12% (alpha of 22.33%). Between 04/25/2011 and 10/03/2011: Price changed from $13.49 to $14.99, a price return of 11.12% (alpha of 28.8%). [Average Alpha: 30.18%]

8. DSW Inc. (DSW, Earnings, Analysts, Financials): Operates as a specialty branded footwear retailer in the U. Between 07/14/2008 and 11/17/2008: Price changed from $10.1 to $10.33, a price return of 2.28% (alpha of 33.01%). Between 11/23/2009 to 06/01/2010: Price changed from $19.61 to $26.18, a price return of 33.5% (alpha of 36.72%). Between 04/25/2011 and 10/03/2011: Price changed from $43.85 to $45, a price return of 2.62% (alpha of 20.3%). [Average Alpha: 30.01%]

9. Treehouse Foods, Inc. (THS, Earnings, Analysts, Financials): Operates as a food manufacturing company servicing primarily the retail grocery and foodservice distribution channels in the United States and Canada. Between 07/14/2008 and 11/17/2008: Price changed from $26.53 to $27, a price return of 1.77% (alpha of 32.51%). Between 11/23/2009 to 06/01/2010: Price changed from $36.03 to $46.15, a price return of 28.09% (alpha of 31.3%). Between 04/25/2011 and 10/03/2011: Price changed from $58.16 to $60.61, a price return of 4.21% (alpha of 21.89%). [Average Alpha: 28.57%]

10. Schiff Nutrition International Inc. (WNI, Earnings, Analysts, Financials): Develops, manufactures, markets, and distributes vitamins, nutritional supplements, and nutrition bars in the United States and internationally. Between 07/14/2008 and 11/17/2008: Price changed from $4.41 to $4.22, a price return of -4.31% (alpha of 26.43%). Between 11/23/2009 to 06/01/2010: Price changed from $5.3 to $6.33, a price return of 19.43% (alpha of 22.65%). Between 04/25/2011 and 10/03/2011: Price changed from $9.39 to $11, a price return of 17.15% (alpha of 34.82%). [Average Alpha: 27.97%]

(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA)

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