BMW: Driving for Value

02/24/2015 10:00 am EST

Focus: STOCKS

Ian Wyatt

Publisher & Chief Investment Strategist, Wyatt Investment Research

There is a lot to like about the auto industry. Yet most investors still shun the automaker stocks. This creates an opportunity for value-seeking investors, explains Ian Wyatt, editor of Million Dollar Portfolio.
  
As a result of the government bailouts and bankruptcies, many investors still have a poor opinion of automakers. This includes car companies in the Asia, Europe, and the US. But the simple fact is that the industry is in recovery mode.

Right now, Ford (F) is trading at ten times 2015 EPS and General Motors (GM) trades at just eight times earnings—a steep discount to the S&P 500 multiple—around 17 times 2015 earnings.

Buying Ford or General Motors makes a lot of sense. And value investors could do far worse than buying these two solid companies at a cheap valuation.

But there is another very well known automaker. But because the stock isn't listed on the NYSE or Nasdaq, it's far less familiar to investors.

In fact, many institutional investors don't own Bayerische Motoren Werke Aktiengesellschaft (Germany: (BMW:DE); (OP:BAMXY)) due to its listing.

One reasons that BMW is a great investment today is that the US dollar has been rising against the euro. Companies that produce their products in European and export overseas could benefit.

Let's consider BMW.  The average car price is 34,700 euros. One year ago, that car would cost $47,157 in US dollars. Yet today, that same car would cost $39,766.

Of course, BMW may not discount its cars so significantly on the US market. But the point is that the company has greater flexibility to attract more customers.

This stock has had a big move in the last month. So, for now, I'll start with a partial position and plan to add exposure on any near-term pullback for the stock.

If your broker will allow you to buy BMW shares in Germany, that's the best option. The average daily share volume in Germany is 1.6 million. That compares with just 69,000 shares on the OTC market in the US.

With higher trading volume in Europe, bid-ask spreads are smaller. This means investors will likely get the stock at a superior price on the German stock exchange.

But if you can only buy the stock in the US, the OTC will be fine. If you choose this route, it's highly recommended to use limit orders. This will help you avoid buying your shares at an inflated price.

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