Buying Mercedes on the Cheap
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The unfolding crisis in Europe has led many economists and pundits to make bold predictions. From the demise of the Euro, to the buying opportunity of a lifetime, the statements being made are sweeping and loud. This brief article will focus on the latter claim, and specifically I will offer my opinion concerning a European equity that should offer tremendous upside in the years to come: Daimler AG (NasdaqOTH: DDAIF.PK).
From a fundamental perspective Daimler AG looks to be greatly undervalued. Below is a table comparing current and historical measures.
|Historic P/E (2004-2008)||Recent P/E||Historic Book (2005-2010)||Recent Book||Historic Dividend (2004-2009)||Recent Dividend||52 Wk. Range||Recent Price|
As displayed above, the price of the stock has devalued without a decrease in earnings. Second, the book value per share exceeds the current cost per share of common stock. Third, the 5.62% dividend offers any portfolio a substantial income boost. Finally, the recent price has rebounded from yearly lows and the following qualitative commentary will offer insight as to why I believe the rebound will continue; especially if Europe can take steps to mitigate their current ailments.
The premier reason why I believe the upside potential of Daimler AG is so great may be simply stated: the economy of China represents the future and recent results demonstrate that the Mercedes brand is globally venerated and desired. More specifically, third quarter results from 2010 and 2011 show a 45% increase in Mercedes-Benz cars sold in the country by unit (40,748-59,270). Further, retail sales increased at an 8% clip over that duration. The growth in China is a call for optimism. As the country develops and the upper-middle class grows, the demand for Mercedes-Benz vehicles will increase accordingly.
At a global level, retail sales of Mercedes-Benz cars from Q1-Q3 2010 to Q1-Q3 2011 increased by 7% (928,872-996,855). The trucking and van divisions exceeded expectations as well with 15% and 19% increases in retail sales over the same duration, respectively. Only the busing division saw declines, but that is the company's smallest source of revenue.
Everything considered, Daimler AG has the potential to become a universally attractive stock. Currently, buy-and-hold value oriented investors should see tremendous upside in the fundamental analysis. Also, if the results from China continue at this rate, momentum investors may find Daimler AG as an attractive play because the Chinese market is not yet fully exploited. Across the board "luxury" oriented securities such as Coach (NYSE: COH), Avon (NYSE: AVP), and Tiffany & Co. (NYSE: TIF) are being lauded as momentum plays on account of Chinese expansion, so I ask, "Why not Daimler?"
Fool blogger Maxwell Kirchhoff, MA, does not own shares in any of the companies mentioned in this entry.