Tag Archives | Daimler

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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Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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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?

Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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What’s Driving Daimler’s Recent Underperformance?

Auto stocks have had a nice run over the past month, the present Cyprus jitters notwithstanding.  Before the recent sell-off, most global automakers were up 5-8% for the month, with two notable exceptions: German automakers Daimler AG (Pink: DDAIF) and Volkswagen AG (Pink:VLKAY).  And though it’s not included in the stock chart, rival German luxury automaker BMW (Pink: BAMXY) has had a similarly rough ride.

      cars

What gives?  Why have German engines been sputtering when American and Japanese continue to purr?

I take particular interest in this because Daimler is an open recommendation of the Sizemore Investment Letter and my pick in InvestorPlace’s Best Stocks of 2013 contest. The stock’s recent underperformance has caused me to fall from as high as third place to my current lowly spot in seventh.  Ouch.

There are a handful of factors at work here.  First, Japanese stocks have massive momentum right now due to the perceived bullishness of Prime Minister Shinzo Abe’s reflation policies, and this is benefitting Toyota (NYSE:$TM) and Honda (NYSE:$HMC).  I see this ending badly—see Japan is Running Out of Time—and I would not recommend having any long-term positions in Japanese stocks.  But for the time being Japanese equities are hot, and I expect Toyota and Honda to follow the broader Japanese market.

Secondly, with the U.S. economy showing signs of life, General Motors (NYSE:$GM) and Ford (NYSE:$F) have been rallying in hopes that this will translate into a sustained rise in domestic auto sales.  It also helps that GM and Ford are two of the cheapest stocks in America at the moment, trading at 6.4 and 7.8 times expected forward earnings, respectively.  And their recent outperformance has come after a year in which both had pretty modest returns relative to the S&P 500.

Company

Ticker

Recent Price

P/E (forward)

Div Yield

52-Week Return

General Motors

$GM

$28.12

6.4

N/A

11.93%

Ford

$F

$13.21

7.8

3.0%

8.04%

Toyota

$TM

$102.66

13.4

1.3%

19.49%

Honda

$HMC

$38.47

13.0

2.5%

-0.59%

Daimler

DDAIF

$55.60

12.0

5.3%

-6.49%

Volkswagen

VLKAY

$37.72

3.5

2.4%

17.53%

 

But the biggest reason for Daimler’s underperformance of late is that the maker of the iconic Mercedes Benz has the misfortune of being domiciled in Europe. The past month and a half have not been kind to investors in European stocks.  The inconclusive Italian election—which saw anti-austerity parties make massive gains in the polls—raised the possibility that all of Mario Monti’s progress over the past year was about to be reversed.

Spanish Prime Minister Mariano Rajoy is embroiled in a corruption scandal that is weakening his government at exactly the time when strong leadership is needed most, and Spanish growth forecasts released this week were worse than investors had hoped.

And to top it all off, the Cyprus bailout—which should have been simple and straightforward—turned into a confidence-crushing publicity disaster that has sent European stocks into a tailspin.

Right now, the “Draghi Put” is being tested.  European Central Bank President Mario Draghi promised nearly a year ago to “do whatever it takes” to save the euro, and this did wonders for market confidence.   As bad as the recent sell-off has been, without the Draghi Put in place it would have been orders of magnitude worse.

But what does it mean going forward?  If the bank runs spread from Cyprus to other crisis-hit countries, the ECB will provide whatever emergency liquidity is needed.  And concerns that deposits at weaker banks might be at risk of confiscation in the event of a bailout should actually help larger, more stable banks such as Spain’s Banco Santander (NYSE:$SAN).

I have some concerns that fear of asset seizures will cause higher-income European drivers to postpone buying a new Mercedes for a few months.  But in the case of Daimler, this is a relatively minor concern.  Western Europe accounts for only about a third of sales, and sales have remained remarkably steady throughout the turmoil of the past few years.  If the chaos of last year didn’t run Daimler off the road, then neither will the fallout over Cyprus.

The key to Daimler’s success lies further east.  If Chinese and emerging market demand remains strong, Daimler could easily post another year of record sales.  Yes, I said “another.”  Despite all of the Eurozone-related drama last year, Daimler enjoyed a record year for sales in 2012.

At this stage, investors face the risk of short-term, sentiment-driven volatility in Daimler, but the risk permanent or long-term loss is miniscule at current prices.  Use today’s volatility as an opportunity to accumulate more shares.

To track Daimler’s performance, follow the InvestorPlace Best Stocks of 2013 contest.

Disclosures: Sizemore Capital is long DDAIF

Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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Listen to Charles Sizemore and Jeff Reeves Discuss Their Favorite Stocks for 2013 on The Slant

With the 2012 InvestorPlace Best Stocks contest completed, the contestants are gearing up for 2013.   Listen to Charles Sizemore and Jeff Reeves discuss their 2013 picks and offer their outlook on the year ahead.

If you cannot view the embedded video player, please follow this link.

SUBSCRIBE to Sizemore Insights via e-mail today.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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Charles Sizemore on Bloomberg TV: Investing in Europe

Charles Sizemore gives his thoughts on how to invest in Europe to Bloomberg’s Guy Johnson, live in London.  To watch the interview, see Emerging Market Exposure via Europe


Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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