The signal to enter – these stocks are particularly cheap right now

How Far Can the Stock Market Crash? No question is currently driving investors as much as this one.

The signal to enter – these stocks are particularly cheap right now

How Far Can the Stock Market Crash? No question is currently driving investors as much as this one. Since the markets have been falling, it has only been a question of when the slide will end. In recent years, stockbrokers did not need patience until the turning point came. The last major downturn, namely the Corona panic of 2020, was over after two months. It could take a lot longer this time. If the feared recession comes, the bear market is likely to drag on for months.

In this case, there is a mark for the German stock index (Dax) that investors should keep a close eye on: 8973 points. This is exactly where the book value of the largest German stock exchange companies, converted into Dax points, is. This book value line of the Dax has historically proven to be the ultimate stopping point. If the stock market barometer was on this line, there was a turnaround and the index turned up again – regardless of the mood on the market.

This phenomenon has been observed in all major downturns. In the chart, it then looks as if the Dax curve would bounce off the book value line. In other words, buying the index at or just above book value has proven to be an almost certain strategy for gains.

The leading index is currently still a bit away from its ultimate support. The Dax would have to fall a good quarter further to touch the book value line. However, a number of individual values ​​are already approaching their book value, and individual companies are already available for less than this.

Book value includes all assets as they appear on a company's balance sheet. These are properties, plants, machines, the vehicle fleet or even patents. The idea behind the book value hold line is simple. It makes no sense for companies to be traded below their intrinsic value for a long period of time. Because then anyone with deep pockets could take advantage of it by buying up the company and reselling the properties.

In times of crisis, when earnings prospects appear questionable, investors would focus more on fundamental company valuations, says Felix Scheppe, portfolio manager at B

"Key figures such as the price-to-book ratio (PBV) are now gaining in importance," explains the asset manager. Other experts also rely on substance in their investment strategy. "The book value has its justification when selecting stocks, even today," says Conrad Lauterbach, CEO of Allington Investors, alluding to the past technology hype.

WELT AM SONNTAG has analyzed all stocks in the market-wide CDax index, the ratio of stock market valuations to the book value per share. This book value check reveals that many companies are already trading near or below intrinsic value. This applies to no fewer than 115 of the 388 CDax titles. For almost a third of all index values, investors pay less than the assets on the company's balance sheet.

The cheapest stock - measured by book value - is Thyssenkrupp. The steelmaker is valued at a mere quarter of what its balance sheet says in terms of assets. In theory, investors could buy up the entire group for three billion euros and achieve proceeds of twelve billion euros from the sale of land, production facilities and other assets. Such a large valuation discount is all the more remarkable because some investors even see hydrogen fantasy in the traditional group. They believe that the hydrogen sector could become a growth driver in the future.

Even in the Dax there are companies that are traded for less than their book value. This applies to a total of ten companies: BASF, BMW, Continental, Covestro, Deutsche Bank, HeidelbergCement, Mercedes-Benz, Porsche Holding, Volkswagen and Vonovia. In terms of substance, the cheapest Dax stock is Deutsche Bank.

At the moment, the share is only trading at 27 percent of its book value, putting it at the bottom of the leading index. This documents the distrust of investors towards the "assets" (assets) in the balance sheet of the largest German financial institution. Investors believe that the securities and receivables that Deutsche Bank carries as assets on its balance sheet could never be sold anywhere near book value.

In the case of a part, so the assumption, the money house would have to accept large discounts when selling it. On average, a huge discount of 73 percent is priced in. The Deutsche Bank share is therefore available at a discount.

There are also numerous companies in the second and third rows that are listed below their book value. These are often industrial companies. These include the steel producer Salzgitter (book value 0.3), the metal dealer Klöckner

However, many of the companies have been “under the book” for years. No one can predict whether the stock market valuation of the companies will ever catch up with the intrinsic value again. Because the value of the plants increasingly depends on whether industrial production in Germany can still be operated profitably given rising energy costs.

Hardly any investor would come up with the idea of ​​buying Thyssenkrupp solely because of the low book value and the resulting break-up fantasy. It is possible that the machines and systems cannot be resold at the value at which they are stated on the balance sheet.

This also reveals a weakness of the substance analysis: Book values ​​are not a fixed figure in the balance sheet, if the economic situation deteriorates or there are structural upheavals in the industry - such as the end of the internal combustion engine in automobile manufacture - machines are also worth less.

In addition, the book value method is not equally meaningful for all sectors. In the technology sector in particular, land, plants and machines hardly play a role in the company's success. Innovative ideas are important here, as are image and network effects. As a result, most tech stocks often appear expensive or even overpriced relative to their intrinsic value.

"In the case of business models whose success is based heavily on intellectual property that is not reflected in the balance sheet, the book value is less important," says Lauterbach. "The informative value is not as great as with companies whose success is based primarily on investments in buildings, machines and systems, such as BASF or Vonovia."

Nevertheless, some technology-driven companies are now trading below the value of their assets. Online retailer Social Chain Group is trading at half book value, as are Bike24 and Home24. In e-commerce, too, retailers are feeling the effects of consumers' reluctance to buy, which means that they sometimes have to offer their products at high discounts.

How long this consumer restraint will last is just as difficult to predict as the development of the recession, if it does come. This in turn has a direct impact on the Dax level. And there it is again, the question that all investors are probably asking themselves.

"Everything on shares" is the daily stock exchange shot from the WELT business editorial team. Every morning from 7 a.m. with our financial journalists. For stock market experts and beginners. Subscribe to the podcast on Spotify, Apple Podcast, Amazon Music and Deezer. Or directly via RSS feed.