A Better Investment Than Ford And GM?

| About: Bayerische Motoren (BMWYY)


BMW is cheap. Buying opportunity or reason to stay away?.

Asia is big news for BMW..

Should you buy instead of GM and Ford?.

Bayerische Motoren Werke, more commonly known as BMW (OTCPK:BMWYY), is one of the worlds leading car and motorcycle manufacturers. Together with its subsidiaries Mini and Rolls-Royce, BMW is one of the worlds largest and most prestigious automakers. Is this stock at less than 8x earnings and a 4.4% dividend yield too good to miss?

For the first 9 months of 2016, BMW reported revenue of €63.25 billion on sales of 1.746 million units, up 2.8% and 6.2% respectively Y/Y. EBIT margin was 9.1%, up from 9.0% in the year ago period, which helped net profit to increase 11.7% to €5.41 billion, and EPS to rise 11.4% to €8.20. On top of that, BMW looks set to raise its dividend once again this year, with €3.50/share expected, indicating a yield of 4.4% at today's prices.

BMW has seen very strong growth in Europe (+10.4%) and Asia (+9.1%) this year, with the majority of that Asian growth coming from China, where sales for the nine month period were up 10.7% and in the third quarter increased an astonishing 17.4% in just 12 months. Strong growth was partially offset by US demand, which decreased 8.7% Y/Y to 270,000 units, but with the 'dieselgate' saga now firmly in the rear view mirror, demand should recover in 2017.

At 7.7x this years earnings and yielding 4.4% BMW is very similarly value to GM and Ford (NYSE:F), so which one should you buy?

BMW as a brand always has been and always will be superior to GM and Ford. The company has built a moat, based around build quality, reliability and desirability, that sets it apart from its American rivals. BMW's latest range of cars are the perfect balance between driving pleasure and good old fashioned German reliability. The 3-series is by far their best selling car, with over 300,000 sold in the first 9 months of the year, and it's easy to see why, the car is reasonably priced, but has the German build quality and performance that we expect from BMW. The company makes a car for everyone, right from the baby 1-series, with its 80+mpg 1.6 diesel engine, to the new range of 'M' division cars, with their eye-watering performance, and price tags to match.

BMW has fantastic opportunity for growth in Asia. The Chinese middle class is growing at a phenomenal rate, and BMW have a 13% share of their auto market already. With high double-digit year-over-year growth in China and almost as high in the surrounding regions, it won't be long before the Asian market is as big for BMW as the US, and who knows, given the huge population, one day could even be their biggest.

Margins are expanding, and with increased production, the trend should continue. The company is seeing increased sales in all but one of its major markets, and US demand should pick up given that the emission problems are now resolved. Asia is a very exciting prospect for BMW going forward, and given the added value of the brand, this stock seems more attractive than the American alternatives. At less than 8x this years earnings and a near 4.5% dividend yield, BMW seems to be a bit of a bargain right now, and should definitely be considered as an alternative auto stock.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in BMWYY over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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