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CNBC: Why You Shouldn't Shun Volkswagen Stock Amid the Scandal

CNBC: Why You Shouldn't Shun Volkswagen Stock Amid the Scandal
(AP)

By    |   Tuesday, 22 September 2015 01:29 PM

Investors shouldn’t shun Volkswagen stock amid the emissions scandal as the German auto maker issued a profit warning, set aside billions to cover the fallout and saw its shares take another battering, some investment experts say.

Tom Elliott, international investment strategist at DeVere Group, told CNBC that Volkswagen won’t be subjected to an "orgy" of political and media pressure.

He said he is "sorely tempted" to buy the stock amid the scandal. "If the net widens, and other companies come in, I suspect the pressure on each individual...would be less. Cars do not excite the same amount of anger as banks do," he said.

CNBC offered two other enticing factors about the stock.

First, it is cheap. “It currently has a price-to-earnings ratio of 5.7, which is an important metric used by equity analysts to gauge how expensive a stock is. The current average for the German DAX is 14.75,” CNBC reported.

Secondly, it is less exposed to the diesel-vehicle emissions-tests technology than its peers. JPMorgan auto analyst Jose Asumendi calculated VW had 25 percent of engines exposed to diesel technology. BMW and Daimler have 35 percent and 45 percent, he added, with Peugeot having 40 percent, CNBC reported.

Meanwwhile, the CEO of the world's top-selling carmaker declared he was "endlessly sorry" that the company had squandered worldwide trust in its brand.

The rapid-fire developments followed the stunning admission that some 11 million of the German carmaker's diesel vehicles worldwide were fitted with software that evaded U.S. emissions controls.

As its share price sunk for a second straight day, Volkswagen said it was setting aside around 6.5 billion euros ($7.3 billion) to cover the fallout. CEO Martin Winterkorn apologized for his company's deception and pledged a fast and thorough investigation, but gave no indication that he was considering leaving, the AP reported.

"Millions of people across the world trust our brands, our cars and our technologies," Winterkorn said Tuesday in a video message. "I am endlessly sorry that we have disappointed this trust. I apologize in every way to our customers, to authorities and the whole public for the wrongdoing."

"We are asking, I am asking for your trust on our way forward," he said. "We will clear this up."

The damage to Volkswagen's reputation was reflected in the market's response.

Volkswagen's share price slid a further 16.8 percent Tuesday to close at 111.20 euros. The fall came on top of Monday's 17 percent decline.

The trigger to the company's market woes was last Friday's revelation from the U.S.'s Environmental Protection Agency that VW rigged nearly half a million cars to defeat U.S. smog tests.

The company told U.S. regulators that it intentionally installed software programmed to switch engines to a cleaner mode during official emissions testing. The software then switches off again, enabling cars to drive more powerfully on the road while emitting as much as 40 times the legal pollution limit.

"Let's be clear about this. Our company was dishonest. With the EPA, and the California Air Resources Board, and with all of you. And in my German words, we have totally screwed up," the head of Volkswagen's U.S. division, Michael Horn, said Monday at the unveiling of a new Passat model in New York.

"We must fix those cars to prevent this from ever happening again, and we have to make things right. With the government, the public, our customers, our employees, and very importantly, with our dealers."

The shockwaves from the scandal were being felt across the sector as traders wondered who else may get embroiled. Germany's Daimler AG, the maker of Mercedes-Benz cars, was down 7 percent Tuesday, while BMW AG fell 6 percent. France's Renault SA was 7.1 percent lower.

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Investors shouldn't shun Volkswagen stock amid the emissions scandal as the German auto maker issued a profit warning, set aside billions to cover the fallout and saw its shares take another battering, some investment experts say.
Volkswagen, Stock, Shares, Scandal
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2015-29-22
Tuesday, 22 September 2015 01:29 PM
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