Big Data Technology for Investor Protection

After the Crash Comes the Rally

Bilanz: Saturday, August 27th 2011

Following the stock market's most recent nose dive, the search is on for shares with strong potential for recovery. Banks currently above all else favour dividend-paying securities.

The debt crisis has caused investors to panic and put stock markets into a tail spin. Compared to the high for the year in February 2011, the Swiss Market Index (SMI) has since lost 30%.

The SMI hit its lowest point this year on August 9: 4695 points. Many banks believe that this was rather extreme. Following the most recent cross-the-board change in direction in some individual stocks we seek attractive entry opportunities, writes Credit Suisse.

Since that time, some stock values have been very attractively priced. Over 40 securities on the Swiss Stock Exchange, including Novartis, show a price/earnings ratio of below 10. For over 70 securities, the price/earnings ratio is even under 1.

Active stock buyers who are willing to take risks are looking for the individual stocks that have the greatest chances of outperforming the market. As a report prepared by financial data provider Cfinancials shows, after the dot-com crisis in March 2003 and the financial crisis of March 2009, Swiss Life, Temenos and Georg Fischer shares recovered the fastest in the following twelve months. Based on performance data, since the low for 2011 to date it is only now that Georg Fischer has again outperformed the market as a whole.

Since the low for the year on the SMI, the most growth has been shown by Santhera. Ironically, it is a bio-tech company, whose returns in recent years have been nothing short of catastrophic. This example underscores how risky it can be to invest too much capital in individual positions.

Bank Vontobel's and Credit Suisse’s stock research departments now advise investors to look at the dividend yield. On average, Swiss stock has yielded 2.3% in recent years. After the most recent plunge in stock prices, the dividend yield for 2011 has been 3.9% on average. The risks are not significantly greater than those for the bonds issued by different states.

Caution should be exercised with such investment tips. They are based on forecasts that are not certain, especially regarding the question of whether or not another recession is on the horizon. Seemingly attractive valuations may lose their appeal over the coming months. Regardless, the debt crisis as the main factor responsible for the recent stock market crash will not be resolved overnight and will keep investors on their toes for a long time to come.

From this perspective, risk-averse investors should also be looking at companies that have strong financial backing, with convincing business strategies and a strong market position. The best Swiss example is Nestlé. While the overall market today is back at the same level it was at a decade ago, the shares of multinational food companies have experienced growth of close to 80%. Furthermore, the estimated dividend yield for 2011 is 4.2%, making it attractive.