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Stock Watch

World's Greatest Stocks: SAP

Our search for great stocks from around the world led us to Europe's largest software company.

MichaelBr90 via Wikipedia

We went looking for the greatest companies outside the U.S. and came up with eight proven picks. Here's one of them: SAP (symbol SAP). To make the list, the businesses had to have U.S.-traded shares and be industry leaders. They also had to possess substantial financial resources to weather rough economic times. Finally, we sought companies that had significant catalysts to drive the next phase of their growth.

See Also: 8 Foreign Stocks Paying Big Dividends

Read more about the case for investing in SAP below. Prices and related figures for U.S.-traded shares are as of August 23. Earnings estimates are for calendar 2016 and 2017, unless otherwise noted. Price-earnings ratios are based on estimated 2016 earnings, unless otherwise indicated. Also, take a look at seven more great stocks from around the world.

SAP

Headquarters: Walldorf, Germany
Share price: $87.78
Market capitalization: $105.2 billion
Estimated earnings per share: 2016, $3.90; 2017, $4.41
Price-earnings ratio: 22
P/E ratio on 2017 estimate: 20
Dividend yield: 1.5%

The business: SAP is Europe's largest software company and the third-largest worldwide, after Microsoft (MSFT) and Oracle (ORCL). Founded in 1972, SAP provides myriad software programs for businesses, managing such functions as finance, human resources, logistics and data storage.

Track record: From its 2002 low through 2012, SAP stock was a big winner, rising about 800%, or 24% annualized, and far outperforming the average blue chip. But since 2012, the shares have stagnated. SAP has been aggressively buying smaller software firms and spending heavily on research, planning for the shift toward software delivery to clients via the Internet (the cloud). Although annual revenues rose from $16.1 billion in 2011 to a record $23.5 billion in 2015, earnings per share fell 11%. What's more, some investors feared that SAP clients would balk at the firm's latest software-upgrade plan, known as S/4 HANA. But the second quarter of this year may have marked a turning point: SAP's software sales rose a larger-than-expected 7% from the same period in 2015, led by cloud software demand. The stock jumped.

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Reasons to own it: Brokerage Credit Suisse says the second quarter demonstrated that SAP is "successfully managing the progressive move to the cloud." What's more, a surprising 40% of the companies signing up for the new S/4 HANA business-application software suite were first-time clients, which is a good sign. If SAP’s huge base of longtime clients shifts to S/4 HANA as expected, the company "stands to regain business momentum over the next several years," says investment research firm Cowen & Co. A pickup in earnings also could lead to a more generous dividend.

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