{"id":37126,"date":"2013-03-27T16:37:25","date_gmt":"2013-03-27T20:37:25","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=37126"},"modified":"2013-03-27T16:37:25","modified_gmt":"2013-03-27T20:37:25","slug":"whats-driving-daimlers-recent-underperformance","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/03\/27\/whats-driving-daimlers-recent-underperformance\/","title":{"rendered":"What\u2019s Driving Daimler\u2019s Recent Underperformance?"},"content":{"rendered":"

By The Sizemore Letter<\/u><\/a> <\/p>\n

Auto stocks have had a nice run over the past month, the present Cyprus jitters notwithstanding.\u00a0 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)<\/b> and Volkswagen AG (Pink:VLKAY)<\/b>.\u00a0 And though it\u2019s not included in the stock chart, rival German luxury automaker BMW (Pink: BAMXY)<\/b> has had a similarly rough ride.<\/p>\n

\u00a0 \u00a0 \u00a0 \"cars\"<\/a><\/p>\n

What gives? \u00a0Why have German engines been sputtering when American and Japanese continue to purr?<\/p>\n

I take particular interest in this because Daimler is an open recommendation of the Sizemore Investment Letter<\/a><\/i> and my pick in InvestorPlace\u2019s Best Stocks of 2013 contest<\/a>. The stock\u2019s recent underperformance has caused me to fall from as high as third place to my current lowly spot in seventh.\u00a0 Ouch.<\/p>\n

There are a handful of factors at work here.\u00a0 First, Japanese stocks have massive momentum right now due to the perceived bullishness of Prime Minister Shinzo Abe\u2019s reflation policies, and this is benefitting Toyota (NYSE:$<\/span>TM<\/a>)<\/b> and Honda (NYSE:$<\/span>HMC<\/a>)<\/b>.\u00a0 I see this ending badly\u2014see \u201cJapan is Running Out of Time<\/a>\u201d<\/strong>\u2014and I would not recommend having any long-term positions in Japanese stocks.\u00a0 But for the time being Japanese equities are hot, and I expect Toyota and Honda to follow the broader Japanese market.<\/p>\n

Secondly, with the U.S. economy showing signs of life, General Motors (NYSE:$<\/span>GM<\/a>)<\/b> and Ford (NYSE:$<\/span>F<\/a>)<\/b> have been rallying in hopes that this will translate into a sustained rise in domestic auto sales.\u00a0 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.\u00a0 And their recent outperformance has come after a year in which both had pretty modest returns relative to the S&P 500.<\/p>\n\n\n\n\n\n\n\n\n\n
\n

Company<\/p>\n<\/td>\n

\n

Ticker<\/p>\n<\/td>\n

\n

Recent Price<\/p>\n<\/td>\n

\n

P\/E (forward)<\/p>\n<\/td>\n

\n

Div Yield<\/p>\n<\/td>\n

\n

52-Week Return<\/p>\n<\/td>\n<\/tr>\n

General Motors<\/td>\n\n

$<\/span>GM<\/a><\/p>\n<\/td>\n

\n

$28.12<\/p>\n<\/td>\n

\n

6.4<\/p>\n<\/td>\n

\n

N\/A<\/p>\n<\/td>\n

\n

11.93%<\/p>\n<\/td>\n<\/tr>\n

Ford<\/td>\n\n

$<\/span>F<\/a><\/p>\n<\/td>\n

\n

$13.21<\/p>\n<\/td>\n

\n

7.8<\/p>\n<\/td>\n

\n

3.0%<\/p>\n<\/td>\n

\n

8.04%<\/p>\n<\/td>\n<\/tr>\n

Toyota<\/td>\n\n

$<\/span>TM<\/a><\/p>\n<\/td>\n

\n

$102.66<\/p>\n<\/td>\n

\n

13.4<\/p>\n<\/td>\n

\n

1.3%<\/p>\n<\/td>\n

\n

19.49%<\/p>\n<\/td>\n<\/tr>\n

Honda<\/td>\n\n

$<\/span>HMC<\/a><\/p>\n<\/td>\n

\n

$38.47<\/p>\n<\/td>\n

\n

13.0<\/p>\n<\/td>\n

\n

2.5%<\/p>\n<\/td>\n

\n

-0.59%<\/p>\n<\/td>\n<\/tr>\n

Daimler<\/td>\n\n

DDAIF<\/p>\n<\/td>\n

\n

$55.60<\/p>\n<\/td>\n

\n

12.0<\/p>\n<\/td>\n

\n

5.3%<\/p>\n<\/td>\n

\n

-6.49%<\/p>\n<\/td>\n<\/tr>\n

Volkswagen<\/td>\n\n

VLKAY<\/p>\n<\/td>\n

\n

$37.72<\/p>\n<\/td>\n

\n

3.5<\/p>\n<\/td>\n

\n

2.4%<\/p>\n<\/td>\n

\n

17.53%<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

But the biggest reason for Daimler\u2019s 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.\u00a0 The inconclusive Italian election\u2014which saw anti-austerity parties make massive gains in the polls\u2014raised the possibility that all of Mario Monti\u2019s progress over the past year was about to be reversed.<\/p>\n

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.<\/p>\n

And to top it all off, the Cyprus bailout\u2014which should have been simple and straightforward\u2014turned into a confidence-crushing publicity disaster that has sent European stocks into a tailspin.<\/p>\n

Right now, the \u201cDraghi Put\u201d is being tested.\u00a0 European Central Bank President Mario Draghi promised nearly a year ago to \u201cdo whatever it takes\u201d to save the euro, and this did wonders for market confidence.\u00a0 \u00a0As bad as the recent sell-off has been, without the Draghi Put in place it would have been orders of magnitude worse.<\/p>\n

But what does it mean going forward?\u00a0 If the bank runs spread from Cyprus to other crisis-hit countries, the ECB will provide whatever emergency liquidity is needed.\u00a0 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\u2019s Banco Santander (NYSE:$<\/span>SAN<\/a>)<\/b>.<\/p>\n

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.\u00a0 But in the case of Daimler, this is a relatively minor concern.\u00a0 Western Europe accounts for only about a third of sales, and sales have remained remarkably steady throughout the turmoil of the past few years.\u00a0 If the chaos of last year didn\u2019t run Daimler off the road, then neither will the fallout over Cyprus.<\/p>\n

The key to Daimler\u2019s success lies further east.\u00a0 If Chinese and emerging market demand remains strong, Daimler could easily post another year of record sales.\u00a0 Yes, I said \u201canother.\u201d\u00a0 Despite all of the Eurozone-related drama last year, Daimler enjoyed a record year for sales in 2012.<\/p>\n

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.\u00a0 Use today\u2019s volatility as an opportunity to accumulate more shares.<\/p>\n

To track Daimler\u2019s performance, follow the InvestorPlace Best Stocks of 2013<\/strong><\/a> contest.<\/p>\n

Disclosures: Sizemore Capital is long DDAIF<\/p>\n

SUBSCRIBE\u00a0<\/a><\/strong>to\u00a0Sizemore Insights<\/em>\u00a0via e-mail today.<\/p>\n

The post What\u2019s Driving Daimler\u2019s Recent Underperformance?<\/a> appeared first on Sizemore Insights<\/a>.<\/p>\n

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