{"id":39060,"date":"2013-06-17T11:54:50","date_gmt":"2013-06-17T15:54:50","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=39060"},"modified":"2013-06-17T11:54:50","modified_gmt":"2013-06-17T15:54:50","slug":"daimler-roars-back-to-life","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/06\/17\/daimler-roars-back-to-life\/","title":{"rendered":"Daimler Roars Back to Life"},"content":{"rendered":"

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

Back in March, I recommended that readers use the recent weakness in Daimler (<\/span>DDAIF<\/a>)<\/span><\/b> shares to add to their positions<\/a>.\u00a0\u00a0 American and Japanese automakers had enjoyed a fantastic first quarter while German automakers Daimler, BMW (<\/span>BAMXY<\/a>)<\/span> <\/b>and Volkswagen (<\/span>VLKAY<\/a>)<\/span> <\/b>had seriously underperformed.<\/p>\n

The reason for the rough ride?<\/p>\n

Investors had been punishing the German automakers for a handful of reasons:<\/p>\n

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  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.<\/li>\n
  2. They were distinctly not<\/i> domiciled in Japan.\u00a0 The drop in the value of the yen was seen as a boost to Japanese auto exporters at the expense of their German rivals.<\/li>\n
  3. The German luxury cars are the favorites of wealthy Chinese, and China had recently begun to crack down on extravagance by political figures.\u00a0 (Giving a new Mercedes or Rolex watch to a public official was a good way to grease the wheels, so to speak).<\/li>\n<\/ol>\n

    I viewed each of these issues as temporary distractions that would run their course.\u00a0 Europe has been \u201cin crisis\u201d and China has been \u201cslowing\u201d for the better part of three years now, and yet luxury auto sales have never been stronger.\u00a0 And given the dynamics of the luxury market,\u00a0\u00a0 a weaker yen is not catastrophic for the German exporters.\u00a0 If you can afford a $70,000 car, then you\u2019re going to buy the car you want;\u00a0 price competitiveness would matter much more to mass-market automakers like Volkswagen.<\/p>\n

    And even if I had been underestimating the macro risk, Daimler was already priced for zero growth.\u00a0 At time of writing Daimler traded for 12 times earnings and yielded over 5% in dividends.\u00a0 Roughly a third of the company\u2019s market cap was in cash.\u00a0 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.<\/p>\n

    \"\"<\/a>What a difference a couple of months can make.\u00a0 Daimler\u2019s stock has come roaring back to life, and my recommendation has shot from 7th<\/sup> place to 2nd<\/sup> place in the InvestorPlace Best Stocks of 2013<\/a><\/strong> contest with a year-to-date return of 20%, including dividends.<\/p>\n

    That\u2019s all fine and good, but what about now?\u00a0 Is Daimler still a buy?<\/p>\n

    Yes.\u00a0 Even after the recent run-up in price, Daimler is far from expensive.\u00a0 Based on 2013 estimates, it trades for just 10 times earnings 0.4 times sales.\u00a0 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\u2019t buy this stock for the dividend unless you\u2019re willing to hold on to it for a while.<\/p>\n

    Meanwhile, Daimler\u2019s profit outlook is looking up<\/a>, and demand for the redesigned S-Class\u2014its high-end flagship model\u2014has been strong.<\/p>\n

    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.\u00a0\u00a0 I\u2019m expecting a strong finish to 2013.<\/p>\n

    If you don\u2019t own shares of Daimler already, I recommend buying on any dips.<\/p>\n

    Disclosures: Sizemore Capital is long Daimler. This article first appeared on InvestorPlace<\/a>.<\/p>\n

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

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