Mercedes-Benz: An "Incredible Bargain"

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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 recently near a two-decade low vis a vis the dollar, the stock is about 20% cheaper for dollar-denominated investors.

About the Author

Mark Skousen is a financial economist, university professor, and author of over 25 books. Dr. Skousen was recently listed as one of the top 20 living economists in the world. In 2018, Steve Forbes presented him with the Triple Crown in Economics for his work in theory, history, and education. Dr. Skousen is a Presidential Fellow at Chapman University in California, where he received the "My Favorite Professor Award" in 2019.

He has worked for the government (CIA), non-profits (president of FEE), and runs FreedomFest, "the world's largest gathering of free minds," every July in Las Vegas. He has also taught economics and finance at Columbia Business School and Columbia University. Since 1980, Dr. Skousen has been editor-in-chief of Forecasts & Strategies, a popular award-winning investment newsletter.

He has written for the Wall Street Journal and Forbes magazine and has made regular appearances on CNBC's Kudlow & Co., the Santelli Exchange, and C-SPAN Book TV.

Dr. Skousen's bestsellers includeThe Making of Modern Economics, Investing in One Lesson, and The Maxims of Wall Street. Based on Dr. Skousen's work,The Structure of Production (NYU Press, 1990), the federal government began publishing in Spring 2014 a broader, more accurate measure of the economy, Gross Output (GO), every quarter along with GDP.

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