We are putting money to work in Mercedes-Benz Group AG (MBGAF); based in Stuttgart, Germany, Mercedes is the world’s preeminent luxury car company, asserts Mark Skousen, in his specialty trading service, Home Run Trader.
In addition to selling cars and vans in almost every country in the world, Mercedes offers financing, leasing, car subscriptions, fleet management, digital services and insurance brokerage options.
Traditionally, Mercedes has sold only gas-powered cars. But that is rapidly changing. Its sales of electric cars surged 64% last year. And Mercedes achieved several technological milestones. It introduced four electric vehicles and attained the first international system approval for SAE-Level Three automated driving. Indeed, the company is rolling out a raft of new electric vehicles this year.
And despite the ongoing semiconductor shortage and bottlenecks in logistics, third-quarter earnings at Mercedes soared 59% on a 19% increase in sales. The company saw particularly robust demand for its premium models and electric vehicles.
Demand continues to outstrip supply. And as the global supply chain returns to normal in the months ahead, Mercedes is well positioned to capitalize on future sales growth. In October, the firm finalized a supply agreement with Rock Tech Lithium (RCKTF) to secure the high-quality lithium that is used in battery production. This will allow it to rapidly scale up its production of fully electric vehicles.
Despite higher inflation and interest rates, retail data show that highly affluent consumers aren’t spending less. Essentials make up a small percentage of their total spending. That’s why luxury goods and services are less affected by periods of economic weakness than their mainstream counterparts.
Yet, shares of many luxury companies have been punished along with the broad market this year. That has created a huge opportunity. For example, Mercedes recently reported that passenger car sales more than doubled in the first nine months of the year. And that’s with supply chain constraints.
Yet, the stock is selling for just five times earnings and yields 8.8%. With annual revenue of $144.3 billion, annual cash flow of $17.5 billion and $15.7 billion in cash on hand, Mercedes will have no problem paying — and increasing — that dividend. And, with the euro near a two-decade low vis a vis the dollar, the stock is about 20% cheaper for dollar-denominated investors.
