If brand new BMW 7 Series or Audi A8s went on sale for 35% less than their original price, dealers' lots would run out of inventory within a week and factories would struggle to keep up with demand. Yet, when the equities of these companies go on sale for a 35% discount, everyone runs in the opposite direction. Granted, there are times of uncertainty about the outlook for earnings and cash flow that warrant a sell-off. However, there are also occasions of panic in the market when stocks of good companies with good prospects for earnings and cash flow get lumped-in with those stocks whose futures do not look as bright--sell first, ask questions later. We think the stocks of the European automakers we cover are more akin to the latter rather than the former of these two groups of equities. Even if we seriously discounted our already-conservative expectations for European light vehicle sales for 2011 and 2012, our fair value estimates would come down by less than 10%.
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