08. June 2021 | 08:25 CET
Deutsche Bank, Commerzbank, Sierra Growth: Of fast money and true values
Prices are rising ever more sharply. Industrialized countries have now surpassed even the emerging markets in terms of inflation. For banks, the current market phase is rewarding: investment banking has become a mainstay and the prospect of higher interest rates also gives hope for the bread-and-butter business. We look at why investors should nevertheless not bet on bank shares and what alternatives there are.
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ISIN: DE0005140008 , DE000CBK1001 , CA8263191055
Deutsche Bank: The dark side of the shrinkage cure
Deutsche Bank has recently been presenting itself with renewed self-confidence - after all, profits are almost as bubbly as they were in the golden age. Above all, business in the investment division is going well. Financing, takeovers, other deals - the faster capital flows around the globe, the more intermediaries like Deutsche Bank and Co. earn. The Blaubank share has also reached new territory from a chart perspective and recently left behind its downward trend, which has been intact since 2007. However, investors should be cautious, especially with such long-term trends: The recent chart breakout is hardly visible in the long-term chart. Short-term events are also likely to be more relevant for the share's performance in the coming weeks.
However, those who take a long-term view can certainly take their cue from the chart. The signal of the chart is clear and points the way towards further price gains. However, it remains unclear how rocky the road will be and how long investors can follow this path. Like all banks, Deutsche Bank is in a quandary. While the risky investment business has long been running smoothly again, the traditional lending business lags behind. The years leading up to the major financial crisis have shown where it can lead when banks have to keep setting new records with their deals. With the bank set to lay off around a quarter of its workforce between 2016 and 2023, there is likely to be a staff shortage soon to still score with traditional banking services. Although this business is not very lucrative given the low interest rate phase, inflation rates already indicate that the framework conditions could change somewhat in a few years. Whether Deutsche Bank will be able to seize these opportunities, however, remains an open question. The Company's shrinkage and focus on investment banking harbors risks.
Commerzbank: Digitization as a cure-all
Commerzbank is also making cuts and plans to eliminate one in three jobs in Germany. Other topics on the agenda include becoming more digital and customer-focused. The numerous personnel disruptions at Commerzbank in recent months show that these measures were also controversial internally. There have already been several changes in 2021, both in management and on the Supervisory Board. In 2021 alone, the restructuring of the bank is expected to cost up to EUR 1 billion. From 53 years of age, employees will be able to take early retirement. However, whether the measures will bear fruit is also uncertain at Commerzbank. Several major banks have already proclaimed digital goals in recent years. But they will no longer be able to convince shareholders, especially since the competition from neo-banks has long since passed them by.
Sierra Growth: Hot potato with attractive risk-reward ratio
While banks have been shrinking healthily for years, secretly hoping for higher interest rates and implementing one digitalization strategy after another like lumbering tankers, investors can invest in several current trends with Sierra Growth shares without many detours. Sierra Growth focuses on the search for raw materials in Peru and the US state of Nevada. Above all, the team around CEO Sonny Janda targets gold, but silver, copper and molybdenum are also suspected on the projects of the mighty team. On the three projects in Nevada, the Company has taken rock samples some time ago and expects results to be available by early July 2021. Sierra Growth then intends to plan further work based on these results.
Sierra Growth is a speculative micro-cap with a market capitalization of about EUR 6.5 million. Unlike large financial companies in the midst of a structural change, however, the calculation at Sierra Growth is much more straightforward: Here, it is only a matter of finding raw materials. If that succeeds, Sierra Growth launches into a new stage of development. If the search fails, it should soon be looking for new properties to explore. This hop-or-top approach offers investors the opportunity for excellent upside potential with only small capital investment, as well as a narrowly defined investment horizon. In Sierra Growth's case, investors will know as early as July what the next move will be on its Walker Lane properties in Nevada. Of course, Sierra Growth shares must also be considered highly speculative. But anyone who knows how to add such stocks to a portfolio can expect a boost in returns. The rising gold price, inflationary pressure and the positive market environment for speculative stocks, including small caps, speak for Sierra Growth.