Tag Archives | Daimler

Daimler Firing on All Cylinders—And it’s Not Too Late to Buy

After one of the best market days this year on Thursday, my recommendation of Daimler (DDAIF) in the Best Stocks of 2013 contest finally popped above the 50% mark for the first time this year, including dividends.

For a stodgy, old German automaker, that’s not a bad return at all.  It’s proof that you don’t necessarily have to take wild risks or dabble in illiquid microcaps in order to generate high returns.  Buying an undervalued blue chip at the right price can deliver attractive returns…without the heartburn.

Of course, the key words here are “at the right price.”  Daimler has been able to deliver market-crushing returns this year because it entered 2013 trading at 8 times earnings and sporting a dividend yield north of 5%.   But this barely scratches the surface.  When I recommended Daimler back in January, it had €46 billion in cash and short-term investments…against a market cap of just €44.  The cash in the bank was worth more than the entire company!

All of that is great.  But what about now?  Is Daimler still a buy?

Absolutely.

I should be clear that I do not expect the next three quarters to give us comparable returns.  We’re not getting the crisis pricing we enjoyed a year ago.  But I do expect Daimler to at least match the S&P 500 and probably outperform it by at least a small margin.  Let’s take a look at the numbers.

Trading at 1.6 times book value, 0.54 times sales and 9 times earnings, Daimler cannot be considered expensive.  It’s broadly in line with the valuation given General Motors (GM).

Yes, these are cyclical stocks, and the “E” part of the P/E ratio has a way of being volatile.  And yes, the company just announced its best sales month in history in September, based on strong demand from China and the United States.  But earnings would hardly appear to be near a cyclical peak given that Europe is only now emerging from recession.

And on this side of the Pond, Daimler is actively mulling expansion in the United States.  The company is already bumping up against capacity constraints at its Tuscaloosa, Alabama plant.  This follows plans to set up a new plant outside of Sao Paulo, Brazil as well.

All of this expansion spending will probably take a toll on margins in the coming 1-3 years.  But I would consider that a high-quality problem!

Will Daimler take the crown in this year’s Best Stocks contest?  That remains to be seen, and we still have two and a half months left in 2013.  Anything can happen.  But I continue to recommend Daimler in growth portfolios and highly recommend buying it on any dips.

Charles Lewis Sizemore, CFA, is the editor of the Sizemore Investment Letter and the chief investment officer of investments firm Sizemore Capital Management. As of this writing, he was long DDAIF. Click here to learn about his top 5 global investing trends and get your copy of “The Top 5 Million Dollar Trends of 2013.” 

This article first appeared on InvestorPlace.

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Daimler and the Best Stocks of 2013

With one quarter left to go, the Best Stocks of 2013 contest is settling into a two-horse race. Daimler AG (DDAIF) is in the lead with a 48% year-to-date return including dividends. Rick Pendergraft’s pick Mylan (MYL) is still well within striking distance at 39%. With three months to go, this race is still far too close to call.

Louis Navellier’s Sherwin-Williams (SHW), Jeff Reeves’ Intel (INTC) and Paul La Monica’s Qualcomm (QCOM) round out the top five with year-to-date total returns of 19%, 14% and 10%, respectively. As a point of comparison, the S&P 500 is up 16% year to date and the Dow Industrials 15%. So, taken as a portfolio, the top five are stacking up well.

At #6, Meb Faber’s contrarian recommendation of the Global X Greece ETF (GREK) is showing signs of life after enduring a brutal summer. It’s up by nearly 30% from its July lows and about 6% year to date.

Steve Freehill’s Two Harbors (TWO) and Jon Markman’s Femsa (KOF) both had great starts to the year but took a pounding during the summer “taper tantrum” and are now flat on the year. Greg Harmon’s infrastructure play Great Lakes Dredge & Dock (GLDD) is having a strong September, but the small cap is still recovering from a sharp sell-off in March. And Stephanie Link’s Vale (VALE) , which has had a terrible year along with the rest of the mining sector, is back from the dead. It’s up by a full 26% after hitting a 52-week low in July.

Taken as a single equally-weighted portfolio, the Best Stocks list is up a little over 9% year to date, including dividends.

With Daimler up 48% thus far, it’s fair to ask: is Daimler still a buy?

And to this, I would answer with a resounding “yes.”

Even after its recent run, the stock is still reasonably cheap. It trades for 12 times expected 2013 earnings, 0.5 times sales, and 1.5 times book value. Daimler also pays a market-beating 3.8% in dividends and happens to have nearly a quarter of its market cap in cold, hard cash.

The valuation numbers are roughly in line with General Motors (GM). And given that I consider General Motors attractive at current prices, this makes Daimler’s underpricing all the more apparent. Daimler is a higher-margin luxury automaker with better positioning among the emerging world’s nouveau riche. And while Daimler’s sales have not been completely immune to the effects of slowing global economic growth, Daimler’s customer base is far less sensitive to economic shocks.

Aside from Daimler’s attractive price—which should be catalyst enough—I see two catalysts that should propel Daimler higher.

First, China—Daimler’s most important growth market—appears to have bottomed for now. As I wrote in a recent article, anecdotal data such as property prices, rail volumes and government revenues all point to a Chinese economy that is expanding again. And the shocks to Chinese demand from earlier in the year—such as the crackdown on bribery and conspicuous consumption by public officials—look to have run their course.

Daimler expects to see demand for luxury cars in China rise 15% next year, and last month the company announced plans to invest €2 billion euros increasing its manufacturing capacity in China. In 2014 the company may or may not recoup the ground lost to rivals BMW (BAMXY) and Audi in recent years. But management sees a bright future in China, and I am inclined to agree.

Next is the stabilization of Europe. Yes, we’ve all seen the protests sporadically erupting in Greece, and yes, Silvio Berlusconi is making noise about bringing down the Italian government again. Yet the Eurozone bond market remains calm. Spanish bond yields are near their pre-“taper tantrum” levels of early May, and Italian bond yields are only about 50 basis points their May lows.

I’m not expecting robust growth to return to Europe any time soon. But with investors already largely desensitized to the perpetual Eurozone crisis, I do see stability. And a stable Eurozone should help Daimler on two counts. First, it makes a pop in domestic sales more likely. But more immediately, it means that investors are more likely to award European stocks richer valuations.

Charles Lewis Sizemore, CFA, is the editor of the Sizemore Investment Letter and the chief investment officer of investments firm Sizemore Capital Management. As of this writing, he was long DDAIF and INTC. Click here to learn about his top 5 global investing trends and get your copy of “The Top 5 Million Dollar Trends of 2013.”  This article first appeared on InvestorPlace.

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The Best Stocks of 2013, the Syria War and More on Straight Talk Money

In Part I of  my interview on Straight Talk Money, I chat with Mike Robertson and Peggy Tuck about the Best Stocks of 2013 contest and how to invest in the event of American involvement in the Syrian War.

Charles Lewis Sizemore, CFA, is the editor of the Sizemore Investment Letter and the chief investment officer of investments firm Sizemore Capital Management. Click here to learn about his top 5 global investing trends and get your copy of “The Top 5 Million Dollar Trends of 2013.”

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Daimler Roars Back to Life

Back in March, I recommended that readers use the recent weakness in Daimler (DDAIF) shares to add to their positions.   American and Japanese automakers had enjoyed a fantastic first quarter while German automakers Daimler, BMW (BAMXY) and Volkswagen (VLKAY) had seriously underperformed.

The reason for the rough ride?

Investors had been punishing the German automakers for a handful of reasons:

  1. They had the misfortune of being domiciled in Europe, which happened to be spooking the market at the time with Italian and Spanish political drama and the bungled Cyprus bailout.
  2. They were distinctly not domiciled in Japan.  The drop in the value of the yen was seen as a boost to Japanese auto exporters at the expense of their German rivals.
  3. The German luxury cars are the favorites of wealthy Chinese, and China had recently begun to crack down on extravagance by political figures.  (Giving a new Mercedes or Rolex watch to a public official was a good way to grease the wheels, so to speak).

I viewed each of these issues as temporary distractions that would run their course.  Europe has been “in crisis” and China has been “slowing” for the better part of three years now, and yet luxury auto sales have never been stronger.  And given the dynamics of the luxury market,   a weaker yen is not catastrophic for the German exporters.  If you can afford a $70,000 car, then you’re going to buy the car you want;  price competitiveness would matter much more to mass-market automakers like Volkswagen.

And even if I had been underestimating the macro risk, Daimler was already priced for zero growth.  At time of writing Daimler traded for 12 times earnings and yielded over 5% in dividends.  Roughly a third of the company’s market cap was in cash.  Barring an end-of-the-world apocalypse, it seemed to me that it would be difficult to lose money on an investment in Daimler over any decent time horizon.

What a difference a couple of months can make.  Daimler’s stock has come roaring back to life, and my recommendation has shot from 7th place to 2nd place in the InvestorPlace Best Stocks of 2013 contest with a year-to-date return of 20%, including dividends.

That’s all fine and good, but what about now?  Is Daimler still a buy?

Yes.  Even after the recent run-up in price, Daimler is far from expensive.  Based on 2013 estimates, it trades for just 10 times earnings 0.4 times sales.  It yields 4.6% in dividends, though I should warn you that the American ADR only pays a dividend once per year, in April, so don’t buy this stock for the dividend unless you’re willing to hold on to it for a while.

Meanwhile, Daimler’s profit outlook is looking up, and demand for the redesigned S-Class—its high-end flagship model—has been strong.

As investors continue to rotate out of defensive sectors and into more cyclical, economically sensitive sectors, automakers such as Daimler should continue to do well.   I’m expecting a strong finish to 2013.

If you don’t own shares of Daimler already, I recommend buying on any dips.

Disclosures: Sizemore Capital is long Daimler. This article first appeared on InvestorPlace.

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What’s Next for Auto Stocks?

Watch me discuss General Motors’s earnings and the outlook for the auto sector with InvestorPlace’s Jeff Reeves.

 

Auto sales have enjoyed a nice bounce in 2013, with sales the strongest they’ve been in six years, but is it sustainable?

I argue that much of the sales surge is “catch up” buying that was postponed during the financial crisis.  The average age of cars on American roads has been stretched out to 11 years.  At some point, old vehicles have to be replaced, and that is what we are seeing.

Longer term, the picture for mass-market autos is not particularly good.  Quality improvements have stretched out the useful life of the average car, which means longer time between purchases.  And Echo Boomer (a.k.a. Generation Y) consumers are not embracing auto ownership to the same extent as past generations.  Modern communications and the internet have made a lot of routine driving unnecessary,  and America is re-urbanizing–which means more public transportation and less driving.

If there is a bright spot, it would be the luxury market, which is less affected by economic worries, enjoys higher profit margins, and has great exposure to emerging markets.

Stocks discussed in this video: $GM, $F, $TM, $DDAIF

Related video: Are Automakers a Buy in 2013?

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