VWAGY - BMW Stock Is Still Cheap But Risks Persist
2024-06-24 09:20:51 ET
Summary
- Despite strong financials and positive trends, I express concerns that the recent underperformance of BMW stock may persist longer than many bulls think.
- I believe that the sanctions on Russian aluminum could impact the European automotive market, affecting BMW's margins and profitability.
- Another important factor is the rise of Chinese car brands and their production, which has almost tripled since 2008 and is taking more and more market share from the Big.
- BMW remains undervalued but faces risks from supply disruptions, rising material costs, and competition from Chinese automakers, leading to a "Neutral" rating.
My Coverage History & Updated Thesis
I initiated coverage of Bayerische Motoren Werke Aktiengesellschaft ( BMWYY ) ( BAMXF ) shares in early February 2024, at the time expressing concerns about potential challenges despite the company's strong financials, rising vehicle deliveries, and positive trends in almost all operating segments. In particular, I feared the impact of sanctions on Russian aluminum, which could significantly affect the entire European automotive market. In my opinion, the industry was facing one of its most serious crises, not only because of the loss of cheap, high-quality aluminum from Russia but also because of increasing competition from Chinese automakers. In light of those factors, I gave BMW a "Neutral" rating and recommended against going long, despite the company's relatively cheap valuation and friendly shareholder policy. As it turned out over time, the stock fell by almost 10% over the past 4 months (the total return, taking into account the relatively good dividend yield of 6.85%), while the S&P 500 index ( SP500 ) ( SPX ) rose by roughly the same amount (+9.65%):
Oakoff's article on BMW, notes added
