The Motley Fool

Why I Just Bought BMW Stock

I’ve been covering the German stock market for for nearly six months, but up until now, I’d been hesitant to pull the trigger and actually buy any German stocks. One reason was that I felt I didn’t yet understand the market well enough. Another was that, frankly, I wanted to make sure my first pick was a good one: a “pick of the litter,” if you will.

But I finally did it. In January, I bought shares of BMW (ETR:BMW) (FRA:BMW). Here were my three big reasons for making that move.

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1) The power of a brand

A solid, recognizable brand can have an incalculable value for a company. Take, for example, a recent study that found that kids ranked food items that came in a McDonald’s wrapper as tasting better than the exact same items presented without a wrapper… even items like carrot sticks or milk! Such is the power of a brand.

BMW has one of the most powerful brands in the world. In fact, Forbes magazine ranked it the 11th most valuable brand in the world, far ahead of automotive peers Mercedes-Benz (#17), Audi (ETR:NSU) (FRA:NSU) (#38), Volkswagen (ETR:VOW) (FRA:VOW) (#56), Lexus (#73), and Porsche (#89). In fact, the only car company higher on the list was behemoth Toyota at #9.

Even better is the fact that BMW is located in Germany — which also helps its brand. According to market research firm GfK’s „Anholt-GfK Nation Brands Index,“ more people now have a positive view of Germany than of any other nation in their 50-nation survey. Germany unseated the United States, which had held the top spot for the previous five years. And as the most valuable German brand, according to Forbes, BMW is uniquely positioned to benefit from this positive attitude.

2) The fundamentals are strong

Even a powerhouse brand can’t always save a poorly-managed or struggling company. Luckily, BMW is neither. Its revenue growth for the last three years has been a strong 5.1%, and its return on equity – a measure of good management – was 16.5% over the last year.  2014 was its strongest sales year ever.

And things don’t seem to be slowing down in 2015. BMW’s January sales of new vehicles were up 6% year over year, at 124,561. True, it was widely reported that it was outsold by rivals Mercedes-Benz (125,865 new vehicles sold) and Audi (137,700 new vehicles sold) in the month of January. But once you factor in sales of BMW’s Rolls-Royce and Mini brands, its total sales come to 142,154, easily outstripping the competition. „This is a positive start, building on the success of last year,“ said BMW board member Ian Robertson, who is responsible for the company’s sales and marketing.

3) The future is bright

Manfred Schoch, BMW’s deputy board chairman, recently announced that the company will increase its German workforce by 5,000 full-time positions this year. By adding jobs, the company expects to boost production and keep up with better-than-expected demand, particularly for its compact vehicles.

The company is also embracing new technologies. It now sells hybrid, plug-in hybrid, and all-electric models of its i3 sedan, and has announced plans to team up with Volkswagen to create a series of electric vehicle charging stations up and down the east and west coasts of the United States, which are expected to increase both the appeal and the utility of the all-electric i3 and Volkswagen iGolf.

The Foolish bottom line

To me, BMW represents many things: a powerful brand, a well-managed company, and future growth. Those are the reasons I made BMW part of my portfolio in January. As of market close on February 24, the stock is up nearly 9% from when I bought it less than a month ago (which I’m not complaining about!). However, I don’t think it’s too late for other investors to jump in, too.

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John Bromels owns shares of BMW. The Motley Fool recommends BMW and McDonalds.

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