Will Germany Lead Europe to Growth in 2013?

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In the stream of incessant downbeat news regarding Europe's soft economy, it may come as a surprise that the German equities market has outperformed most world stock markets in 2012. Year to date, the DAX Index (DAXINDICES: ^DAX  ) , which tracks 30 of Germany's largest capitalization blue chip stocks, has returned nearly 30% -- handily outpacing the S&P 500 index, which to date has returned approximately 12.75%, as well as the Dow Jones Industrial Average (which has gained about 7% this year). German equities sport attractive valuations, and German corporations have made hay while the euro swoons (a weak euro benefits the country's export-rich economy). The average P/E ratio of the DAX is 18.5% , which is slightly dearer than the S&P 500's 16.7%, but still attractively valued. If you're interested in focusing your telescope across the Atlantic in 2013, check out the following two relatively safe large-cap German ADRs, along with an ETF that provides exposure to the broader German equities market.

Raising the IQ of the world's cities
Siemens  (NASDAQOTH: SIEGY  ) is a conglomerate with a focus on industry, health care, and energy. Year to date, the company's stock has returned 8.19%. An emerging aspect of Siemens' business is providing power grid and infrastructure software solutions to large cities around the world. Siemens competes with IBM and Cisco in the race to capture a chunk of this "smart cities" market, which is estimated to be in the hundreds of billions of dollars. Siemens' "infrastructure and cities" sector revenue reached five billion euros in its fiscal fourth quarter, and net profit for this sector increased 17% in the sector year over year, to 416 million euros. Look for this sector to play an increasingly important role in Siemens' business in 2013 and beyond.

Owning the cloud
Enterprise software giant SAP (NYSE: SAP  ) made a significant strategic decision in 2012. The company whittled its reporting divisions down to two major categories: "on-premises," which accounts for software that runs on customers' hardware and mobile devices, and "cloud," which tracks the company's rapidly growing cloud software services. Cloud division revenue grew at a breakneck pace in the first three quarters of 2012, mushrooming to 144 million euros, versus just 12 million euros in the comparable period last year. SAP wants to dominate corporate cloud computing, and plans to grow revenue in this division to more than 2 billion euros, or $2.6 billion, by 2015. This number may have something to do with smaller competitor, which just happened to record annual revenue of $2.3 billion last year. SAP's stock blazed quite a trail in 2012, having gained almost 46%.

Hedge your bets
The iShares MSCI Germany Index (NYSEMKT: EWG  ) provides a diversified vehicle for entering the German equities market. This ETF is up roughly 26% year to date. EWG is comprised primarily of large-cap German blue chip equities. In addition to Siemens and SAP, EWG's top 10 holdings include BASF, Bayer, Allianz, Daimler, Deutsche Bank, and Volkswagen. The average P/E of EWG is 12.48. The fund's expense ratio weighs in at a moderate 0.53%. The fund also pays out dividends at a current yield of 2.48%. Between its decent dividend and relatively tame expense ratio, EWG should be considered a candidate for total return investing.

German equities could very well outperform again in 2013. If uncertainty reigns again worldwide in the coming year, investors may continue to pour money into the German markets due to the perceived relative safety of this stable, prosperous European powerhouse. 

If EWG whets your appetite to learn more about a few ETFs that have great promise for delivering profits to shareholders in a recovering global economy, check out The Motley Fool's special free report "3 ETFs Set to Soar During the Recovery." Just click here to access it now.

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