By Tony Sagami
Five Stocks to Profit from the Luxury-Auto Boom
When I was a teenager, I dreamed about owning a Corvette, but that was when I had no money and even less brains.
But you can’t escape your roots, and I will forever be the son of a frugal vegetable farmer. Even though I can afford a Ferrari, a Ford pickup will do just fine for me, thank you.
But hey, a lot of people feel very differently, because the streets are full of BMWs, Mercedes, Range Rovers, and other expensive luxury/sports cars everywhere I go—even in some of the backwater towns in Asia that I travel to.
What amazes me is the number of luxury cars I see in Asia. The streets of Tokyo, Taipei, Singapore, Kuala Lumpur, Bangkok, Shanghai, and Beijing have just as many—if not more—of those high-priced luxury cars as any city in the United States.
In fact, I almost got run over by a Tesla car when I was in Xian, China. The Tesla electric car is so quiet that I didn’t hear it coming, and the mobile phone-talking driver was more interested in his phone conversation than watching the road.
That’s quite a change from 20 years ago, when the primary mode of transportation in China was a bicycle.
Today the streets of major Chinese cities, such as Beijing and Shanghai, are so clogged with cars that it can take hours to go a couple of miles. In fact, China is now the largest auto market in the world, and carmakers from all over the world are tripping over each other to get their piece of the Chinese auto pie.
Thousands of auto industry insiders and potential buyers are going to gather at the largest event in the automobile industry—the 2015 Shanghai Auto Show—in a few weeks.
Yup, the Shanghai Auto Show is even bigger than the Detroit Auto Show.
China has been the largest auto market in the world since 2009, but consulting firm McKinsey & Company predicts it’s going to get even bigger.
200 million Chinese have driver’s licenses, and McKinsey expects that Chinese auto sales will grow by an average of 8% a year between now and 2020.
The luxury market, however, is where the big bucks are being made. McKinsey expects luxury cars sales to grow by an impressive 12% a year over the same period. “Demand outstrips supply for our vehicles,” said Klaus Maier, president of the China Mercedes-Benz division.
That’s why every carmaker in the world—including Rolls-Royce, Porsche, Ferrari, Bentley, and Lamborghini—will flock to Shanghai to showcase their newest models.
If you want to tap into the luxury auto boom, there are several ways to do so.
Option #1: Volkswagen (VLKPY.PK). Yes, Volkswagen isn’t the first company you may think of when it comes to luxury car sales, but VW not only has the #1 market share in China, it also owns Audi.
There are lots of inexpensive VWs on the road, and there are also miles of black luxury Audis, which are the preferred sedan of government officials and older, wealthy businessmen.
Option #2: BMW (BAMXY.PK). BMW is extremely popular in China; according to the company, it gets 20-30% of its total profits from China.
BMW, by the way, also owns the Rolls-Royce and Mini brands.
Option #3: Porsche (POAHY.PK). The younger Chinese millionaires prefer speed over comfort, and Porsche is making a killing in China. In the first 10 months of 2014, Porsche sold 36,021 cars in China, which was just a hair below US sales.
Plus, Porsche has a nice kicker in that it owns 50% of Volkswagen, so you get both VW and Audi exposure when you buy Porsche stock.
All three of these luxury auto stocks trade on the US over-the-counter market, but I consider Toyota (TM) to be the #1 way to profit from the booming Chinese auto market.
Now, to be fair, I need to disclose that my Yield Shark subscribers already own Toyota stock and are sitting on a huge profit… but I’m not selling because I expect it to go a lot higher. To see what else I like for my Yield Shark readers right now, click here.
Furthermore, buying before the Shanghai Auto Show has frequently been a very profitable strategy.
As always, you need to do your homework. And don’t forget that timing is everything when it comes to investing, so I recommend that you wait for my next buy signal. However, there’s no question in my mind that the road to the Chinese auto market is paved with investment gold.
30-year market expert Tony Sagami leads the Yield Shark and Rational Bear advisories at Mauldin Economics. To learn more about Yield Shark and how it helps you maximize dividend income, click here. To learn more about Rational Bear and how you can use it to benefit from falling stocks and sectors, click here.
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