[Auto] BMW Stock Has Electric-Vehicle Momentum and Is a ‘Safer’ Sustainability Pick Compared With Volkswagen and Daimler, Says Deutsche Bank

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The German premium automobile market is headed for a blowout quarter and BMW is “too intriguing to ignore,” Deutsche Bank said on Thursday, as the bank upgraded the stock and raised the target price by 17%. Shares in BMW (ticker: BMW.Germany) climbed 2% higher in early Frankfurt trading before giving up gains to trade around flat—ahead of rivals Volkswagen Group (VOW.Germany) and Daimler (DAI.Germany), which were 1% to 2% lower. BMW stock is up 22% since the beginning of the year. The back story. While the Covid-19 pandemic wrought havoc on car makers in 2020 and led to a massive fall in sales, BMW’s exposure to China—its largest and most profitable market—helped the 105-year-old company to rebound. Beyond the pandemic, the road ahead for BMW, like many other European car makers, will be defined by electric vehicles. Governments instituted a pedal-to-the-metal push for greener transport last year. Incentives for consumers and punitive emissions targets for manufacturers helped make Europe the world’s largest electric-vehicle market in 2020, and the region remains a key force in the industry’s pivot away from internal combustion engines. BMW lags behind Volkswagen Group, Europe’s EV leader and the key rival to Tesla (TSLA), as well as Mercedes-Benz-owner Daimler, but controls more than 5% of the total European EV market. BMW plans for electric vehicles to account for 50% of sales by 2030 and restructure its product range around a new class of EVs from 2025. Also read: BMW Stock Is Up Amid a Sunny Profit Outlook. But Electric Vehicles Are the Real Story, and Investors Should Watch Out. What’s new. German premium cars are headed for “a very strong quarter,” Deutsche Bank said on Thursday, with upscale brands like BMW set to outperform mass-market European businesses like Renault and parts of Volkswagen Group, which includes Audi and Porsche. Analysts led by Tim Rokossa at the bank said that while BMW lags behind Daimler and Volkswagen in its pivot to electric vehicles, the company’s momentum is “too intriguing to ignore,” especially in the U.S. The analysts also noted that the company is a “safer” pick than its German rivals with respect to environmental, social, and governance investing factors. The bank said BMW’s chief financial officer, Dr. Nicolas Peter, left a positive impression on analysts following a roadshow where the management team confirmed that pricing remains strong across all markets. BMW expects deliveries to rise 5% to 10% year-over-year, with management considering the upper end of the range more reasonable, but Deutsche Bank said this guidance may actually be too conservative.The bank upgraded BMW stock from hold to buy and raised the target price to €105 ($123.64) from €90. With the shares trading around €88, the analysts see the stock as having legs to run 19% higher. The analysts also said that BMW confirmed that the supply chain of semiconductors was tight amid the global shortage, but that there has been no discontinuation of production.Looking ahead. If auto investors have learned one thing in the last year, it is that the market is going crazy for electric-vehicle stocks. The hunger for EVs has spilled over from pure electric plays like Tesla and NIO (NIO) to legacy car makers, with shares in well-positioned groups such as Volkswagen seeing a tremendous rally in the last month. Barron’s has cautioned in the past that investors in the likes of BMW should be careful to keep an eye on valuations, and not let romantic growth stories overshadow the realities of this competitive sector. That is still true. But Deutsche Bank’s upgrade adds weight to the company’s ambitions and is a meaningful endorsement. An added bonus is that BMW is currently safe from the global semiconductor shortage. This is more immediate good news for the stock, because manufacturing issues related to the chip shortage have wrought havoc for shares in other companies, like Volvo Trucks, which now faces production halts.Emmanuel Macron was last week the first European leader to suggest the European Union should decide a significant other round of fiscal stimulus, on the model of the $1.9 trillion package passed by the U.S. Congress two weeks ago. “The U.S. will be back to pre-crisis level by the middle of 2021, and most important will resume their [growth] trajectory very soon,” the French president said after a video summit of EU leaders, noting that the European economy will only be back to its prepandemic level in the spring of 2022.Wall Street is facing a new problem linked to hedge funds, margin calls, financial derivatives, and leverage. It sounds a little scary, but it shouldn’t be enough to hurt the market. The same can’t be said for some banks’ stocks, though. Shares of Credit Suisse and Nomura Holdings fell sharply on Monday, as each warned of potentially large losses from a U.S. client, likely linked to troubles for Archegos Capital Management reported by Bloomberg and The Wall Street Journal. Archegos declined to comment.American depositary receipts of Chinese electric-vehicle makers NIO, Li Auto, and XPeng are under more pressure after an editorial in a Chinese news outlet called out some problems with the local EV industry. NIO (ticker: NIO) ADRs are down about 0.5% in early Monday trading. Li Auto (LI) ADRs are down 0.3%, and XPeng (XPEV) ADRs have fallen 1.7%. The S&P 500, for comparison, is down about 0.2%. The Dow Jones Industrial Average is off about 0.1%.Covid-19 hammered the restaurant business—and its suppliers, like restaurant equipment maker Welbilt—hard. But with the economy recovering and eateries reopening, Welbilt stock looks like a buy. It’s been a miserable year for restaurants. Sales fell 27% last year, as in-person dining disappeared and restaurants were shuttered. And when no one is going to restaurants, the businesses don’t buy new ovens, which caused revenue at Welbilt (ticker: WBT), which makes deep-fryers that McDonald’s (MCD) uses to cook its french fries,...Lululemon will report earnings on Tuesday, and Piper Sandler argues that the stay-at-home-era star can deliver—in its results, and throughout the year—even with an economic reopening. Analyst Erinn Murphy reiterated an Overweight rating on Lululemon athletica (ticker: LULU), although she lowered her target for the stock price to $478 from $490. The maker of athletic apparel “should benefit from the broader casualization of fashion trends–even in 2021,” she wrote.Am I getting desperate, or do European stocks look attractive? Let’s not rule out a combination of the two. The S&P 500 index is up more than 75% from its pandemic low a year ago. And since good news on vaccines broke in November, value stocks and reopening plays have turned into market darlings. If you hold a value stock that isn’t up at least 20% since then, consider the possibility that it’s not a value. Or not a stock. Is the ticker symbol kWh? That might be a utility bill.