Submitted by
Sizemore
Investment Letter
as part of our
contributors
program
This piece orginally appeared on InvestorPlace as Charles
Sizemore's submission for the
10 Best Stocks of 2013
contest.
The auto industry is a truly wretched business to be in.
You have high labor costs and the constant threat of labor
unrest. You have vicious competition among existing
competitors. And perhaps worst of all, you have enormous
capital expenditure needs coupled to a highly cyclical business
that is prone to booms and busts.
So, you might be surprised to see that
Daimler AG (OTC:DDAIF
)-the maker of the iconic Mercedes-Benz-is my recommendation for
the InvestorPlace Best Stocks of 2013 contest.
Normally, I hate the auto sector and would refuse to touch an
auto stock. But right now, I believe that Daimler may be one
of the best opportunities in the world at its current price.
As a cyclical auto stock-and one based in crisis-wracked Europe, no
less-Daimler has gotten no love from investors in recent
years. But their timidity is our opportunity.
Whenever I think of Daimler's flagship brand Mercedes, I will
always think of the "Indiana Jones of Finance," Jim Rogers.
In a road trip across six continents chronicled in his book
Adventure Capitalist
, a customized Mercedes was Rogers' vehicle of choice.
Why? Because
"every dictator and mafioso in the world drives a Mercedes…even
in countries with no roads to speak of."
Rogers knew that if he had car trouble anywhere in the world, he
would be able to find a mechanic who could work on a Mercedes.
Rogers wasn't joking about that. Mercedes is
the
premier global luxury automobile
. And it is a fantastic way to get "backdoor"
exposure to emerging markets,
which I expect to enjoy a nice rebound in 2013. Daimler gets
well over a third of its sales from emerging markets, with China
being a major contributor. China is already the world's
largest consumer of the high-end S-Class, and China accounted for
10 percent of Daimler's revenues in the first three quarters of
2012-and this despite a marked slowdown in the Chinese economy.
And Mercedes cars are by no means Daimler's only product;
Daimler is also a world leader in industrial trucks, which make up
more than a quarter of revenues. And as you might expect,
emerging markets are a major source of demand.
Approximately half of Daimler truck sales come from Asia
and Latin America.
China appeared to hit bottom in late 2012, and I expect a
rebound in Chinese demand to benefit high-end luxury firms in
general and high-end autos in particular. Even in a "bad"
year (if you can call 7.5% GDP growth in 2012 "bad") China was a
major contributor to Daimler's success.
Investors fret that 34 percent of Daimler's revenues come from
Western Europe, where unemployment is high and overall consumer
demand is weak. This does not particularly worry me.
Daimler's high-income customers are less at risk of financial
distress than the average European, and sales have remained stable
throughout the crisis.
But let's say I'm being too optimistic about the Eurozone and
that the atmosphere of austerity makes a large delayed dent in
European sales in 2013. Even so, the stock price offers
more than a sufficient margin of safety. The shares trade for
less than 8 times earnings and yield over 5 percent in
dividends.
Yet none of this tells the full story about how cheap this
company is. Daimler trades at accounting book value and for
just 0.39 times sales. It also has €46 billion in cash
short-term investments, and receivables-and a market cap of just
€44 billion. Yes, the cash in the bank and receivables are
actually worth more than the entire company at current prices.
Daimler is simply too cheap to pass up. This is the maker
of
the
premier global luxury car trading at prices that would suggest the
Mayan calendar was correct about the world ending in 2012.
Action to take: Buy shares of Daimler AG at market
. Daimler could easily double in the 12-18 months. And
if we're a little early in getting into this stock, we're getting
paid handsomely to ride out any unexpected volatility.
Disclosures: Sizemore Capital is long DDAIF.
Note: Charles Sizemore won the 2011 Investor Place Best
Stocks contest with a monster 44% return on his recommendation
of Visa (NYSE:$V) and was runner up in the 2012 Best
Stocks contest with a 37% return on his recommendation of
Turkcell (NYSE: $TKC).
The post Daimler: Ride in Style in 2013 appeared first on
Sizemore Insights.
Related posts:
- Listen to Charles Sizemore and Jeff Reeves Discuss Their
Favorite Stocks for 2013 on The Slant
- Sizemore Capital's 2012 Year End Letter to Investors
-
What Will Gold Do in 2013?