Volkswagen AG (VOW.DE)

Likes the auto space. Prefers BMW. Also, likes auto parts companies. Likes the ones with the higher margins.

He wonders how long before you start to see inflation. Germany did so well, but it was on the back of a lot of Asian, particularly Chinese, demand for German car products. It could go higher or it could go lower, but there is an internal structure around costs and currency, so he would stay away.

Prefers Tata (TTM-N), which has Range Rover, Jaguar, trucks and buses all through the subcontinent in a huge way. Volkswagen is really interesting because of the China operations. They are the largest foreign manufacturer of vehicles in China. It has some potential but is so big. They have been turning it around. Have done some acquisitions that just haven’t gotten going.

Volkswagen with a big European exposure would be the place to look. You can buy it in Europe through your broker.

There has been a big improvement in auto sales in North America, but looking forward, he likes this because you are getting exposure to the strength you are seeing in North America, but also, to European auto sales, which remain at 20 year lows. He is expecting some pretty good growth. They also have emerging-market growth. Have the biggest market share of any auto company in China.

The argument for this one is that the environment looks pretty good. Big sales in China and US sales are ramping up. The fleet is getting old, some say 13-14 years. Asia is a very important place to be. When he analyzed balance sheets he bought Tata (TTM-N) and Ford (F-N). They will all break out and do better. Wait for a pull back.

Had a long, drawn-out process when they were trying to buy Porsche. Thinks the lawsuit is still out there but generally they own it and it is part of their business. This is a very important part as it has very high margins. Not expensive at 6.7X earnings with a 3.5% yield. Have lots of cash in the balance sheet, part of which will be used to help buy out some of the positions they don’t own. Very small market share in the US of about 5.1%, which they should try to increase. Europe has been a very difficult environment for them. Good story.