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[bidnessetcnews]

Are Driverless Cars About To Become A Reality?

With tech companies like Google posing a threat to automakers in the driverless car race, Bidness Etc looks at how close we are to self-driving cars

Driverlessness is becoming a more important feature in the auto industry. The first warning for traditional car makers was Google Inc’s (GOOGL) concentration on the idea –by a tech company not a legacy volume producer. The latest wake-up call is the appointment of auto industry exec, John Krafcik to lead Google’s driverless car operation.

German manufacterers BMW (BAMXY) and Mercedes-Benz, a subsidiary of Daimler AG (DDAIF), have taken the hint. To prevent themselves being outflanked, they are now gathering software experts.

A key player in the field is Tesla Motors Inc (TSLA). Earlier in the year, at the Allen & Co. Conference in Sun Valley, Tesla CEO Elon Musk predicted that autonomous vehicles would hit US roads in three to five years.

Google’s Self-Drive Drives Automakers

Google’s autonomous car initiatives have spurred a hiring spree at BMW, Mercedes-Benz and Audi. Software expertise is emerging as a battleground for car makers and tech firms, because vehicles need lines of code to calibrate electric vehicle motors to batteries, communicate with smartphones, or mobilize the brakes when the car’s sensor detects an object ahead.

Without improving on their digital expertise, they could encounter difficulties incorporating autonomous technology and car-sharing services, if they go head-to-head with rivals such as Google and Uber.

In August, a consortium of German car makers announced it would pay $2.80 billion to purchase Nokia’s maps business. This is a clear attempt to bolster location services, a vital aspect of self-driving vehicles.

During September 2014, Mercedes-Benz’ parent company, Daimler, bought two smartphone applications, “mytaxi” and “RideScout.” Each app is designed to pull in passengers who do not own cars.

Tesla’s Foothold In The Market

Critics suggest Mr. Musk, who has billions invested in space travel projects and upscale electric vehicle production, is an ideal personality to discuss the status of autonomous cars.

In March this year, he told an Nvidia event that self-driven cars will be safer technically, and more reliable, because they will eliminate human error. “It is going to be the default thing and it is going to save a lot of lives,” he said.

He added that human driven vehicles are “too dangerous” and will be banned within the next 20 years. He went on to say that autonomous vehicles will be commonplace as early as next year, with his company being the first to unveil a commercial driverless vehicle.

The automaker has been proactive in equipping its Model S sedan with frequent software and hardware upgrades that new add features to the vehicle’s autopilot. The updates will be added through a 7.0 over-the-air software update to be launched later this year.

The latest generation of this software will activate the “auto-steering” feature in the newer Model S vehicles. The capability utilizes ultrasonic sensors and cameras for smart visuals. Elon Musk claims this latest addition would enable the Model S to drive from Los Angeles to San Francisco without human intervention.

Goldman Sachs Begs to Differ

In May, a Goldman Sachs research note claimed Tesla will not spearhead the driverless car revolution.

That document marked 2017 as the “watershed year” for autonomous car development, saying the charge to autonomy will not be led by automakers, but by Google. More importantly, in the race to produce the world’s first autonomous vehicle, Tesla was not even named as a legitimate contender despite its supposedly leading position in the field.

Goldman analysts suggest that Google may begin manufacturing a “Level 4” autonomous car in two years. That suggests it would have full control of primary driving features such as braking, steering and accelerating, without human involvement.

Conclusion

Google’s latest developments will, we believe, push automakers such as Daimler AG and BMW to launch vehicles that pave the way for the world’s first driverless car. Tesla’s technological advantage may give it an edge in the contest. It seems clear that the cross-pollination between tech companies and carmakers will be the crucial factor in making driverless cars a fact of life.

[charlessizemore]

Hunting for Value in European Stocks

I’ve been bullish on European stocks for the past year based on their vastly cheaper valuations relative to the American market. I’m not quite willing to jump into the Greek market just yet, as there aren’t many liquid stocks to choose from, and those that are available aren’t quite as cheap as I’d like to see, given the macro risk. But, European stocks as a whole are a fantastic bargain, and the recent selloff presents a great buying opportunity. 

I’ll start with a broad play on developed Europe, the Vanguard FTSE Europe ETF (VGK). 

VGK gives you exactly what you want from a Vanguard index fund: instant diversification, tax efficiency and rock-bottom fees. VGK holds a basket of 540 stocks spread across the major economies of the eurozone, as well as non-eurozone countries Norway, Switzerland, and the United Kingdom. As a passive index investment, VGK only turns over about 7% of its portfolio per year, and its expense ratio is a negligible 0.12%. 

VGK’s largest country weighting, at 31%, goes to the United Kingdom. France, Germany and Switzerland each chip in 14%, and after that the weightings trail off. “Problem children” Spain and Italy make up only 5.2% and 3.7%, respectively. Looking at industrial sectors, VGK has a pretty conservative bent. About half the portfolio is invested in financials, health care and consumer staples. 

If you’re looking for instant exposure to the major markets of Europe, this is it. But, if you’re looking to play a rebound in the markets hardest hit by the Greek fiasco, you might find that VGK is a little too conservative. 

For more aggressive investors, my next recommendation is the iShares MSCI Spain ETF (EWP). There are relatively few Greek stocks that trade as ADRs, and any investment in Greece should be viewed as a coin toss in this environment: Heads, Greece really does stay in the eurozone and Greek stocks rally; tails, we eventually get a Grexit and Greek financial assets drop by another 50% or more. The returns potential is huge, but there is simply too much downside risk for me to get comfortable. 

Spain, however, represents a nice risk/reward trade off. While Greece’s economy remained depressed, the Spanish economy is expected to grow 2.8% this year. Regional unrest is a problem, and Catalonia may very well push forward with a referendum on independence. Spain has had regional unrest since the Franco dictatorship, yet life seems to have a way of moving on. 

Looking at Spanish stocks, there’s a lot to like. By Research Affiliates estimates, Spanish stocks trade at a cyclically-adjusted price/earnings ratio (“CAPE”) of just 12, which is less than half the CAPE valuation currently being sported by American stocks. 

Spanish stocks also have relatively little exposure to the Spanish economy. Spanish multinationals are active across Europe, and taking advantage of common language and cultural ties, they also have an outsized presence in Latin America. 

EWP gives a nice basket of Spanish stocks, including household names like Banco Santander (SAN), Telefonica (TEF) and Zara’s parent company Inditex (IDEXY). 

Finally, let’s drill down to an individual stock that I expect to perform very well: German luxury automaker Daimler AG (DDAIF). 

Traditional auto stocks have been out of favor of late, as investors have flocked to sexier growth stories like Tesla Motors (TSLA). Yet, at current prices, Daimler offers a value that is hard to ignore. DDAIF stock trades hands at just 10 times earnings and sports a dividend yield of 3%. Furthermore, after lagging its German rivals for years, Daimler has done a nice job playing catch-up with a redesigned product lineup. 

If China’s market rout slides into a real “hard landing,” Daimler will feel the pinch, as China makes up a good 13% of revenue. Yet, as recently as last month, Daimler announced that it expects to see sales growth of at least 10% this year in China. 

Disclosure: Long DDAIF, EWP, SAN, TEF.

Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog. 

Photo credit: Chema Concellon

[charlessizemore]

What Happens When My Stock Get Delisted?

Even Wall Street has standards.

I know that might sound hard to believe, but to benefit from the liquidity, capital-raising power and prestige that come with a listing on the New York Stock Exchange or Nasdaq, a company has to follow a few rules. 

Among other requirements, to maintain a listing on the NYSE, a company has to have an average market cap and stockholders’ equity of at least $50 million and must have an average share price of $1 or more over a 30-day period. Nasdaq continued listing requirements are slightly different, but the same concepts regarding assets, market cap and share price apply. 

For both NYSE and Nasdaq listing, companies are also required make timely financial disclosures. 

Enter Ocwen Financial Corporation (OCN), which recently made the news for failing file its annual report in a timely manner. Ocwen Financial received a deficiency letter from the NYSE. In plain English, this essentially means that Ocwen is on the naughty mat until it learns how to obey the rules. 

I should be clear that Ocwen is not at immediate risk of being delisted. The company has six months to get its house in order before the NYSE takes any further action. And if after that six-month period Ocwen still has yet to publish its annual filings, the NYSE has the option to allow another six months to pass before initiating delisting. Of course, the NYSE could also opt to delist the company now if it felt that something dodgy was going on. 

I expect Ocwen Financial to get its books in order well before a delisting happens. But this brings up a good question — one that all investors should learn the answer to:

What happens when the shares of a company you own get delisted?

A delisting is scary. And frankly, you generally have no business owning a stock facing delisting because, with few exceptions, a company that fails the continued listing requirements is on the express train to bankruptcy. 

Take RadioShack Corporation (RSHCQ) and its newly minted ticker, for example. Back in February, RadioShack’s plunge reached a low point when, after receiving two delisting warnings, the company was delisted by the New York Stock Exchange after failing to submit a business plan. RadioShack then filed for Chapter 11 bankruptcy protection days later. 

Here are some general rules you should follow with respect to companies at risk of delisting or already trading over the counter:

If the delisting is due to financial distress, stay away. Yes, the company might pull a rabbit out of a hat and recover, but chances are better that delisting is merely a stop on the road to bankruptcy.

The over-the-counter market is a playground for manipulators and fraudsters. This is Jordan Belfort “Wolf of Wall Street” territory. Take any information you get on a non-listed stock with a major grain of salt.

If the stock also trades on a well-regulated market overseas, it is fair game so long as its over-the-counter ADRs trade with sufficient trading volume. (A couple hundred thousand shares per day in volume is adequate liquidity for most investors.)

A recent high-profile example of this last point would be German industrial giant Siemens (SIEGY), which opted to be delisted from the NYSE last year due to the reporting headache of being registered in both Germany and the U.S. 

However, Siemens actually provides a few examples of what to expect during a delisting. Holders of Siemens’ NYSE-traded ADRs woke up one morning to find that the ticker symbols on their shares had been changed from “SI” to “SIEGY.” The five-letter ticker symbol is typical of stocks that trade on the Pink Sheets or Over-the-Counter Bulletin Board (“OTCBB”), which is where most delisted stocks end up. The Pink Sheets and OTCBB are essentially the Wild West of investing, as there is very little in the way of regulation or oversight here. 

Several quality stocks that I have owned over the year trade over the counter, such as Siemens, Nestle (NSRGY) and Daimler (DDAIF). But all of these stocks have one thing in common: They are blue-chip companies subject to a high standard of financial regulation in their home markets (Germany, Switzerland and Germany, respectively). For these companies, the U.S. over-the-counter listing is merely a way to allow Americans to buy the stocks at home, in dollars.

Bottom Line

As a general rule, stay away from companies at risk of delisting. Most already have a host of potholes to deal with. 

Plus, while in theory, nothing will change with respect to your equity in the company, in practice you might find your shares a lot harder to sell. Over-the-counter stocks tend to have low volume and low liquidity because they are shunned by institutional investors. And because of the lax reporting requirements, they are a lot harder to research.

Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog.

Photo credit: audio-luci-store.it