How To Pitch A Stock...A Case For Mercedes and Lumida Wealth

Good morning from Toronto.

I have a lot of blog posts in my head and a few mostly written but I am calling an audible last minute to write about Mercedes (I do not own one or the stock at the moment).

My partner Matt led an investment for Social Leverage in Lumida Wealth and I am a big fan of Ram Ahluwalia who is the founder and CEO.

Ram and team are the Lindzon family financial advisors offering up ideas and overall portfolio construction/allocation.

He shares great insights on Twitter and I love the way he presents ideas.

One that caught my attention this morning is Mercedes (ticker MBGYY or MBGAF an ADR)

Here is the chart you can find on Koyfin:

Here is Ram’s pitch in a long form tweet…

Friends Don’t Let Friends Drive Mercedes:

Mercedes has a dividend yield of 7% and a PE ratio of 4.7.

Instead of buying a Mercedes for $150,000 you can buy Mercedes stock and create a cashflow stream. Take the dividends to lease the Mercedes of your choice and rollover into perpetuity :)

Here’s a short write-up on Mercedes:

What I Like:

Mercedes has a combination I look for: Value, Quality, and Momentum (up 20% last 12 months)

A strong brand which is evidenced in above average industry profit margins

The focus on the Luxury segment which is one of @LumidaWealth investment themes

Demonstrated ability to pass on price increases to customers in an inflationary environment

Embedded growth story:

Sales is growing fastest on the Top End & Battery

Mercedes is quietly transitioning to Direct Sales (like Tesla!). That means Retailer profit margins over time…

Mercedes has craftsmanship and builds great products (including adding GPT go figure…)

Free cashflow growth of 13%

Valuation. The PE ratio is 30% below its Median PE ratio.

Discipline on CapEx and R&D costs

What I Don’t Like:

Mercedes revenue growth at 5% is matching inflation. (This is a ‘Buffett’ type bet on the long stream of cashflows, not on growth)

The Auto industry is generally a lousy sector that is subject to interest rate cycles

High inventory levels relative to sales

Variant Perception:

Mercedes has a growth story in i) its transition to retail, and ii) growth in EV sales and infra that is not recognized by the market

Mercedes will compare favorably to Tesla in a few years

Why Now / Catalyst?

Mercedes is now competing with Tesla on the higher-end of the fast growing EV market [ good trend ]

Mercedes is opening up its own charging stations in the US, and has access to the Tesla superchargers

Mercedes EV sales are up 67% to 149K units.

Role in Portfolio:

Will Mercedes out-run Nvidia or Big Tech? No.

This is a Value Stock (it might just be that it’s an ADR and hard to buy ticker for Americans).

Mercedes will generate current income like a bond. Except this ‘bond’ has a coupon that goes up over time.

The stock multiple is already discounting a Euro recession…And maybe I will be surprised on the upside due to the embedded growth story.

Transcript Excerpt:

‘We are in the process of changing our business model in go-to-market and moving towards direct sales. And in this past quarter, Germany, which is our third biggest market switched to direct sales. And that went as smooth as you can expect, realizing how big of a market this is.’

I will be adding a position to Mercedes sometime between now and end of September.

This is not financial advice. DYOR. I’m sharing an example of non-consensus investing in action.

If you want to meet Ram to talk about Lumida Wealth just hit me up.

Have a great Wednesday.