Even though Germany’s stock market has risen strongly over the past year, analysts still see further opportunities for gains in several German stocks because of an anticipated pickup in domestic demand. Increased stability in the rest of the eurozone also will push up exports.

Germany weathered the global financial crisis well compared with the rest of Europe, but it wasn’t immune. That’s because Germany relies significantly on sales to the rest of Europe. Exports were equivalent to 52% of gross domestic product in 2012, and around 55% of exports went to other European countries; an additional 5% went to the U.K. The eurozone as a whole is expected to emerge from recession next year and even grow a little.

Consumer spending in Germany has been sluggish. Wage gains have been weak and rising real estate prices aren’t having a big impact because of the low rate of home ownership in Germany (about 50% vs 65%-70% in the U.K., the U.S. and Canada), says Martin Fahey, head of European equities with I.G. International Management Ltd. in Dublin and portfolio manager of Investors European Equity Fund.

But wages are starting to pick up in response to moderate inflation. Thus, Fahey thinks, the resulting increase in consumer spending and a pickup in exports will help to generate economic growth of around 1.8% in 2014 vs 0.5% this year. The only caveat, he cautions, is that the increased wages need to be offset by productivity gains or profits will suffer.

There’s also the possibility of some government stimulus. Chancellor Angela Merkel’s centre-right Union bloc won the Sept. 22 election but still doesn’t have a majority. With Merkel’s previous coalition — with the pro-business Free Democrats — failing to get 5% of the vote and no seats in the Bundestag, she is negotiating with the centre-left Social Democrats for a policy package that will allow Merkel’s party to govern for the next four years. Analysts expect this to include pro-growth policies domestically and less insistence on austerity for the struggling southern European countries.

Here’s a look some of the recommended German stocks:

> Bayer AG has a very good pipeline of new pharmaceutical products, Fahey says, and he expects Bayer’s earnings to grow by 13% in 2014 and by 12% in 2015.

This stock also is recommended by Don Reed, president and CEO of Franklin Templeton Investment Corp. in Toronto; and Peter Hadden, portfolio manager with Pyramis Global Advisors, a unit of FMR LLC (a.k.a. Fidelity Investments) and co-manager of Fidelity Europe Fund.

Despite the slowdown in Chinese pharmaceutical sales because of bribery investigation into the sector, a report from analysts with J.P. Morgan Cazenove (JPMC) in London is very positive about Bayer, saying that launches of new pharmaceutical products “continue to track ahead of expectations.” The report foresees strong near-term growth and the potential that it will be sustained into the latter parts of this decade. Thus, the stock “remains undervalued and its sector discount of 10% is unjustified.”

The JPMC report’s price target for Dec. 31, 2014, is 100 euros ($144) a share, vs the 91.20 euros ($131) that Bayer stock closed at on Oct. 25. (Reed considers the stock to be reasonably priced right now; Hadden says it’s “not expensive at all.”)

Besides pharmaceuticals, Bayer has an agricultural division that sells crop seeds and crop protection products — including fungicides, herbicides and insecticides — as well as a materials sciences division that produces polymers and high-tech plastics. The agricultural business is doing well, with particularly good prospects in Latin America; however, the material sciences division’s margins are being pressured by industry overcapacity and weak demand.

> Deutsche Bank AG is a play on the potential pickup in Germany’s domestic demand and increased global investment-banking activities, says Charles Burbeck, co-head of global equity portfolios with UBS Global Asset Man-agement (U.K.) Ltd. in London.

Noting that Deutsche Bank has had a new management team for a year now, and it’s planning major restructuring in the years ahead, Burbeck considers the stock’s price, at 36.09 euros ($52) a share as of Oct. 25, to be undervalued.

A JPMC report agrees, noting that Deutsche Bank’s current valuation is the cheapest among the eurobanks. Although the report admits that Deutsche Bank is a “higher-risk play than the Swiss wealth-management players,” the bank provides “better gearing to a European recovery.”

The JPMC report has an “overweight” rating on the stock — assuming that the bank moves more aggressively on reducing leverage, accelerating its cost-savings program and starts settling litigation issues. The report offers a Dec. 31, 2014, price target of 40 euros ($58) a share.

> Heidelberg Cement AG. A JPMC report has an “overweight” recommendation on this stock, noting that the firm “continues to benefit from an attractive geographical portfolio while maintaining a disciplined approach to its financial structure.” In particular, the report notes, Heidelberg has a strong position in the U.S. and will benefit from continued recovery in that housing market. The firm also is exploring “brownfield” expansion projects in the U.S. and plans to reopen a mothballed brick plant in the U.K., where demand is increasing.

The JPMC report has a Dec. 31, 2014, price target of 63 euros ($91) a share for the stock, vs the 57.35 euros ($82) it closed at on Oct. 25.

> Merck KGAA is the world’s oldest operating pharmaceutical and chemical firm, with roots dating back to the 17th century. Its U.S. assets were seized during the First World War and used to create Merck & Co. The two companies have been totally unrelated since.

Besides a large business in drugs, including cancer and multiple sclerosis (MS) treatments, Merck is one of the largest global manufacturers of liquid crystals that are used in computers and television screens; this division accounts for about 16% of Merck’s business and is very profitable.

Although Reed likes the stock, a JPMC report rates it “neutral.” The report admits that if demand picks up in liquid crystals — or if there are further cost-savings programs — then earnings could be higher than expected. However, the report cautions, significant market-share gains from new MS therapies developed by other firms could dampen Merck’s earnings.

The JPMC report has a Dec. 31, 2014, price target of 125 euros ($180) a share for the stock, which closed at 122.50 euros ($175) on Oct. 25.

> Metro AG is the largest discount “cash and carry” grocery chain in Germany. The firm also operates in many other countries and has consumer electronics stores. By revenue, Metro is the fifth-largest retailer in the world, with sales of 66.7 billion euros in 2012.

A JPMC report has an “underweight” rating on the stock, with a Dec. 31, 2014, price target of 23 euros ($33) a share, vs the 34.95 euros ($50) it closed at on Oct. 25. In contrast, Reed doesn’t expect the stock price to fall that drastically; he thinks it’s worth looking at, particularly on weakness.

> Siemens AG is a global conglomerate involved in wind-generated power and a variety of electronics.

A JPMC report is cautiously optimistic on the stock, noting “a flurry of recent power orders,” adding that JPMC is becoming more comfortable about the direction of Siemens under its new CEO. The report rates Siemens as “neutral” but suggests buying on weakness.

The JPMC report recommends buying the stock if its price weakens, with a Dec. 31, 2014, price target of 98 euros ($141) a share vs the 93.85 euros ($135) the shares closed at on Oct. 25. IE