Why Volkswagen AG (ADR) Stock Can Make a Comeback

There are only good times ahead for VKLAY stock now

VKLAY stock - Why Volkswagen AG (ADR) Stock Can Make a Comeback

Source: Jan Kalab via Flickr

That stink was not the emissions from a Volkswagen AG (ADR) (OTCMKTS:VLKAY) vehicle. It was the stink from the emissions scandal surrounding VLKAY stock. You’ll recall that some 11 million vehicles were manufactured in a specific way to defeat emissions control standards.

There were criminal charges, and some $18 billion put aside to fund the recall of all the cars and the legal costs, and the whole thing was one big mess that resulted in net losses for VLKAY stock. In fact, the stock took a hit of over 60% when all was said and done.

However, VLKAY stock has since recovered from its low of $23 and is back over $40. Net income climbed well over $6 billion in 2016. VLKAY stock and the company are both back from the dead.

The new CEO,Matthias Müller, is decisive and he has a long history in the auto industry. He kicked out seven of the top ten managers at VLKAY. Then he totally overhauled the diesel system. He’s also doing the most important thing, which is rebuilding consumer trust.

Why VLKAY Stock Can Comeback

The good news is that the Volkswagen scandal differs from other major scandals and corporate PR nightmares.

Let’s take restaurants. Chipotle Mexican Grill, Inc. (NYSE:CMG) has been unable to shake its E. coli problem. When it comes to food, something we put in our bodies, it becomes extremely difficult to regain consumer trust. Restaurants don’t have brand loyalty as much as other businesses, because there are so many other choices when it comes to food. It’s only real hope, I think, is a complete re-brand.

Apple Inc. (NASDAQ:AAPL) can survive the iPhone battery scandal because Apple has a long history of being a solid company, making solid products and delivering quality. There is trust in Apple, and the company is making this matter right … it’s a fairly small thing.

With Volkswagen, the problem is fixable. That’s because, for starters, VLKAY has a fair degree of brand loyalty. People research cars, and when they settle on one, it’s because there are limited choices. Sure, there are many brands out there that make the same model cars that Volkswagen does; however, the choices for a given model in a given price range with given specs is rather limited.

People may get angry with VLKAY over the emissions issue, but an emissions issue doesn’t affect the car’s ability to drive. That’s different from an issue surrounding a car’s safety. So taking a bunch of managers to the woodshed, paying big fines, recalling cars — all these things take time, but they are fixable.

Which is why VLKAY stock will continue its comeback and may arguably be undervalued. From both a PR standpoint and a commitment to manufacturing new kinds of vehicles, VLKAY is also serious about electric car manufacturing. That wins favor with people.

My concern actually goes to the overall auto market. There’s a lot of red in the sales charts for cars of all types and makes. Despite the fact that the economy is improving, car sales are not in great shape. My suggestion is that you instead shop around the auto parts stocks, which have been doing far better. People don’t always need cars, but they do need car parts.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.

Article printed from InvestorPlace Media, https://investorplace.com/2018/01/volkswagen-ag-adr-vlkay-stock-comeback/.

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