Lord, Won't You Buy Me a Mercedes Benz

In the late nineties, the cool thing to do on Wall Street was to merge and realize all those synergies. While many companies like AOL and Time Warner discovered that their synergies were negative, some companies did manage to create value. One of the biggest deals of that decade that did not live up to the hype was the DaimlerChrysler (DCX) international marriage. The result was better engineering for low margin Chrysler vehicles, and plastic interiors for the high margin Mercedes cars. The stock and Mercedes, in particular, took a beating over the lower quality and the lack of imagination in design.
Fast forward to 2006, Chrysler just had a great year with the new lineup that includes the 300m, while Mercedes has rolled out the beautiful CLS coupe. With the redesigned S-Class hitting the US market this summer, the future looks bright for the Mercedes division.
Right now, DCX trades at a current 17 P/E (like Toyota), but at a future discount to Toyota at a 12 forward P/E. This means that although future earnings are projected to be much higher, the price of the stock has not yet moved. It seems people want to wait for a blow-out quarter before getting in. Another reason is that the car industry as a whole is looking weak, but I see it as an opportunity to gain market share for Chrysler in the US market. As well, the margins are extremely low at around 2% for profit margin. I think with the new cars creating buzz and demand around the Mercedes brand, the company will regain pricing power and squeeze out another percent. At a 12 P/E and a 3.40% dividend, everyone can afford a Mercedes.