Video

#SaxoStrats
Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Strategic trade
Trade view / 18 August 2015 at 7:20 GMT

#SaxoStrats: BMW looks attractive on 28% plunge

Head of Equity Strategy / Saxo Bank
Denmark
Instrument: BMW:xetr
Price target:
Market price:
Background

We are launching a new tactical position in BMW (long) driven by the recent 28% plunge in the stock price since mid-March. The decline has been driven by concerns over China’s economy, but the interesting thing is that BMW has accelerated its sales growth from zero to 15% the past year concurrent with China sales hitting a complete stop. 

The 3% CNY devaluation is not a worry as the EUR trade-weighted is still trading at the lowest levels since 2003 driving sales growth in the US and making a positive impulse to the European economy lifting car sales in Europe.

Management and risk description

There is more upside and than downside in this trade as BMW valuation (12M forward EV/EBITDA) is around average since 2011 which is attractive given economic outlook, weak EUR and brand recognition.

Key risks are a severe slowdown in China/global economy, institutional selling and EBIT margin.

Parameters

Buy at the market with a trailing stop of €12.18 in steps of €1.22. 

b
 




















Source: Bloomberg, Saxo Bank

BMW daily share pricem
 Source: Saxo Bank

— Edited by Oliver Morrison

For more on equities click here

Non-independent investment research disclaimer applies. Read more
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4y
ChristianK ChristianK
how do you setup this trade? Not sure about the trailing stop 12,18 in steps of 1,22 and how to enter this in WebTrader?
4y
smedsgenbo smedsgenbo
I don't agree. The stock should form a base. Even better a cup with handle. Look at the chart from October 14 to January 15....after that it flies. I want to see that pattern again before going in.
4y
fxtime fxtime
Probably a daft question....would a BMW be regarded as a ''luxury'' item in China? We are already seeing the knock on effects of Chinas' drive to stamp on fiscal largesse etc.
4y
Peter Garnry Peter Garnry
The trailing stops works like this. Say you are buying a stock worth $100 with a trailing stop of $10 in steps of $1. If the stock plunge immediately following your buy and it goes to $90 you are stopped out. If the stock goes to $105 first and then down to $95 you are stopped out. If the stock goes to $101 the stop is raised to $91 from $90 hence the step size. Makes sense?
4y
Peter Garnry Peter Garnry
@smedsgenbo yes the October 2014 lows are exactly around our stops and the critical levels on the downside. However, our view is that a lot of negative outlook has been discounted into the stock price with the 30% plunge. It is not our view that the global outlook will deteriorate further and the US and European car sales are getting some momentum. Remember 55% of BMW's sales is still in Europe which is growing nicely now.
4y
Peter Garnry Peter Garnry
Here is BMW's 12-month rolling sales and growth rate. The interesting thing here is that BMW has accelerated the sales growth rate in a period when their China business has gone to a complete stop. In other words, it is not China anyway that has been driving the performance in the business over the past year. Just worth keeping in mind.
4y
Peter Garnry Peter Garnry
Here is the sales chart
4y
JOSHUA63 JOSHUA63
Never catching a falling knife is a good trade! Daimler and Volkswagen looking the same !
Fca is the only carmaker that is not plunging for the buyers are looking for Ferrari's shares!
4y
Peter Garnry Peter Garnry
@joshua63 so financial markets don't mean revert? Do they only trend in your world?
4y
miros13 miros13
You've posted an suggestion but why you set the stop of so deep under market price ?

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