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Forget Volkswagen, Buy These German Stocks Instead

Over the years, Volkswagen AGVLKAY had been performing reasonably well largely because of its high-performance diesel vehicles which were promoted as environment friendly, fuel efficient and conforming to the clean air laws in the U.S. However, recent findings by the Environmental Protection Agency (EPA), which revealed that the company had developed a software algorithm to deceive U.S. emission tests, subjected Volkswagen to considerable tongue lashing. The company has admitted to the fraudulent practice.

The Software Trick

Volkswagen has accepted that its diesel vehicles in the U.S. are installed with software which makes the engines appear to have low emission levels. The software switches on pollution controls during emission tests and then switches it off to power the engine, once the vehicle is on road.

The automaker has been resorting to such practices for almost 7 years. Volkswagen had been using the aforementioned software to show reduced emission without installing the hardware which is needed to actually bring down emission levels.

According to the EPA, Volkswagen vehicles emit nitrogen oxides, or NOx, at almost 40 times the standard amount. Although the cars do not pose safety risks, public health is at stake.

Consequently, Volkswagen has been ordered to halt the sale of its diesel vehicles in the U.S. Almost 11 million vehicles around the world are equipped with this software. The vehicles in concern include Jetta, Beetle, Audi A3 and Golf from model years 2009-2015 and Passat of model years 2014 and 2015.

The company has also halted the production of 2015 and 2016 Volkswagen and Audi models powered with four-cylinder turbo diesel engines. Sale of used vehicles with these engines will also be stopped.

Meanwhile, Volkswagen may incur a fine of $37,500 per vehicle for the violation. The automaker will also fix the issue free of cost as soon as it develops a solution. In addition, Volkswagen expects to face a $7.3 billion charge for the sham which has severely tarnished its reputation, clearly reflected by its declining share price. It is also expected to affect the company's global sales.

Our Choices

While this scam will dent Volkswagen's sales, other automakers are sure to take advantage. Let us take a look at 2 German automakers that present a better investment option in light of the Volkswagen debacle.

Daimler AGDDAIF - currently sporting a Zacks Rank #1 (Strong Buy) - is a global leader in the premium passenger car segment and also the largest manufacturer of commercial vehicles. The automaker sells its vehicles under Mercedes-Benz, Mercedes-AMG, Smart Automobile, Freightliner, Western Star, Thomas Built Buses, Setra, BharatBenz, Fuso, MV Agusta brands.

Daimler currently has a Value Style Score of 'B' and an impressive forward P/E ratio of 8.2, which is lower than the industry forward P/E ratio of 10.8. The company's expected long-term earnings per share growth rate is pegged at 11.6%.

Bayerische Motoren Werke AktiengesellschaftBAMXF currently carries a Zacks Rank #3 (Hold). BMW is a multi-brand automobile manufacturer that focuses on the premium segments of the worldwide automobile and motorcycle markets. It offers three brands: BMW, MINI and Rolls-Royce. The West Virginia University, which conducted tests on Volkswagen's software, has conducted them on BMW too, which has managed to pass it.

BMW has a Value Style Score of 'B' and an impressive forward P/E ratio of 8.6, which is also below the industry forward P/E ratio of 10.8. The company's expected long-term earnings per share growth rate stands at 8.9%.

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VOLKSWAGEN-ADR (VLKAY): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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