Buy Volkswagen To Ride Along With Porsche's IPO

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Even in bad markets, there are attractive opportunities to put our money to work in our portfolios. One of them is the upcoming spin off of Porsche from Volkswagen AG (VWAGY), observes Bryan Perry, growth and income expert and editor of Cash Machine.

This IPO is expected on Sept. 29, with valuations ranging from $60 to $80 billion. This would be the largest initial public offering in the history of Germany’s stock market.

Some analysts are already saying the valuations are too lofty. They voiced the same concerns when Ferrari N.V. (RACE) went public in 2015 at $52 per share, and summarily traded as high as $278 last year, returning better than 250%. Luxury brand stocks have an excellent track record of rewarding shareholders.

VW is also fast becoming one of the premier electric vehicle manufacturers in the world with aggressive plans to phase out most internal combustion engine (ICE) vehicles to make way for multiple lines of battery electric vehicles (BEV).

VW seeks to have 50% of its total production to be BEVs by 2030. It provides its products under the Volkswagen Passenger Cars, Audi, KODA, SEAT, Bentley, Porsche, Volkswagen Commercial Vehicles, Scania, MAN, Lamborghini, Ducati, and Bugatti brands. The company also offers motorcycles.

Based out of Wolfsburg, Germany, VW will benefit greatly from the weak euro in exporting vehicles around the world. As Porsche goes, business is quite strong as sales for 2021 are forecast to rise by 20% to $39 billion. With no other major IPOs on the calendar, Porsche shares should be in high demand on day one of the listing.

The way to play this Porsche IPO is to buy Volkswagen AG and receive a 6.1% dividend yield. Shares of VWAGY have been down 37% year-to-date. VW is offering only 12.5% of Porsche shares to the public, but taking the company public with VW shares trading at such a steep discount is, in my view, a very appealing investment proposition.

Let’s get involved with this premier automaker and the prospect of seeing the value of the Porsche brand unleashed while we collect a juicy 6.1% dividend yield in a stock that is going to rival the biggest car companies in the world for a share of the EV space that is forecast to grow revenue by 8% next year to $300 billion. Volkswagen trades at just five times earnings, offering great value, a good dividend, and a near-term catalyst. VWAGY is a buy under $16.


About the Author

For more than a decade, Bryan Perry has brought his expertise in high-yield investments and option income/trading strategies to his Cash Machine, Quick Income Trader, Instant Income Trader and Hi-Tech Trader subscribers. He spent more than 20 years working as a broker for major Wall Street firms. Mr. Perry is frequently quoted by ForbesBusinessWeek, and MarketWatch.


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