ThyssenKrupp AG (TKA.DE) is one of Europe’s industrial giants. They employ over 150,000 employees in more than 80 countries worldwide and are involved in the resource-friendly manufacturing of a number of innovative products.
The recent VW scandal cast a shadow on the whole “Made in Germany” concept. As an aftershock to that news, German manufacturers may pay the price for a while. That is until it becomes clear how the country will cope with this situation. It will be interesting to see how the manufacturing PMI (Purchasing Manager Index) for the Eurozone will be affected this year as this is the key to interpreting the EU manufacturing industry. A move below the $50/share level indicates that VW’s waves are much bigger than anticipated. Other German manufacturers can be affected by association, and ThyssenKrupp falls into this criteria.
In an effort to overcome this obstacle brought on by association, big German manufacturers are trying to reposition themselves in an innovative wave. ThyssenKrupp is planning to repurpose gases emitted by its steel smelter into saleable products like methanol.
Looking at the company’s share price over a five years period, one can see that it has continued to move to the downside. This is despite the fact that the economic environment was being stimulated by the world’s bigger central banks, and a secondary effect of quantitative easing is higher stock prices. This was not the case for ThyssenKrupp and they are trading at around €19/share after falling from the €38 level in mid-2011.
Even now that the European Central Bank (ECB) is running a quantitative easing program of its own. With Mr. Draghi, the ECB’s President signaling more stimulus to come, ThyssenKrupp hasn’t enjoyed an increase in price. This was despite the fact that the German index, the Xetra Dax, jumped on the news.
That being said, I would favor a bearish approach on the ETR: TKA stock until the December ECB meeting. Draghi and company are possibly going to deliver decisions on further rate cuts, an extension of the bond-buying program, a possible increase in the number of bonds bought, etc. All of these represent stimulus measures; crucial and important for a company that is active on the global market. Other major central banks in the world, such as China, for example, will try to adapt to the new conditions by cutting further into the rates as well.
I would say that the decisive move will come from the Fed in December. If they don’t hike, then equities will enjoy a fairly nice rally.
As a consequence, the way to trade ETR: TKA is to trade a put option with a one-month expiration date. If the ECB lives up to its promise of easing in December, a call option with a one-month expiration date could also be traded.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
