Bucking the Market Trend: Opportunities at Mercedes, First Hydrogen and Barrick Mining

Mercedes: The Next Downward Correction

Anyone invested in the German premium brand Mercedes has likely been rubbing their eyes in disbelief over the past few weeks. The stock was heavily sold off again starting in early September and recently fell below EUR 40. This marks a new 5-year low for the stock. Analysts point primarily to weak sales in China, the world’s largest auto market, as well as margin pressure, which is dampening consumer demand.

However, current media reports are unlikely to be helpful in this regard. Public attention is currently focused primarily on the Stuttgart-based company’s restructuring and workforce reduction program. The company, however, aims to manage the process in a socially responsible manner and is relying mainly on voluntary agreements. This includes, for example, a severance program, with the focus outside of production—specifically on administration, IT and development.

Management is also attempting to counter the share price slide with ongoing share buybacks. This could pay off in the medium and long term. After all, share buybacks make the most sense when the valuation is low rather than high. Recently, for example, Deutsche Bank noted in a commentary that opportunities are emerging for contrarian investors. The stock is trading at a single-digit price-to-earnings (P/E) ratio and offers a high dividend yield. In fact, the analyst consensus expects a retroactive dividend of EUR 3.50 per share to be paid out for this year. The dividend yield is thus well over 8%. That is not something you see every day with an established, still-profitable automaker. However, it will still be many months until the next dividend payment date. At least Mercedes has recently held its own against the competition in electric vehicles. According to CEO Ola Källenius, sales of battery-powered vehicles rose by 51% in Q2.

Investors who see an opportunity here to invest against the market trend should, however, wait for the stock to bottom out. From a technical analysis perspective, the DAX-listed company’s position is not yet stable. In fact, it still looks as though one might be trying to catch a falling knife here. In any case, it is advisable to enter the market gradually in several tranches in such situations if you want to invest against the market trend.

First Hydrogen: Is the Sideways Phase an Entry Opportunity?

During the hydrogen boom, First Hydrogen’s stock once traded above CAD 5—more than ten times its current value. The boom in hydrogen companies is over, at least for now, on the stock market. However, the technology continues to develop, and for contrarian investors who like to go against the grain, First Hydrogen offers corresponding opportunities.

The company currently has a market capitalization of just around CAD 33 million, or about EUR 21 million. So the time may be right for speculation. The company is making progress in more and more areas. The Canadians now even aim to establish a foothold in the defence sector with their technology. To this end, they recently announced the signing of a memorandum of understanding with Exodus Actuation Solutions Inc. Together, the companies aim to make a mark in the field of robotics and unmanned ground vehicles with their propulsion system. The planned vehicle is intended for operations in difficult terrain.

This potential new business segment aligns with First Hydrogen’s broad and holistic approach to fuel cell technology. From the outset, the company has prioritized commercial vehicles, relying on existing vehicle platforms rather than expensive in-house developments and equipping them with its own fuel cell systems. By supplying green hydrogen to commercial vehicle fleets, management also hopes to generate long-term recurring revenue. Test series are underway with companies such as Amazon, SSE, and Wales & West Utilities in the United Kingdom. The goal here is to test the prototype vans in regular delivery operations. Specifically, this involves range tests under full load, refueling times, and payload stability. There is tailwind from a regulatory perspective, as strict ESG requirements are intended to ensure that fleet operators decarbonize their vehicles.

Positive news on this front could quickly propel the stock out of its sideways trading range, as happened earlier this year. Traditional contrarian investors therefore currently have the opportunity to pick up a few shares of First Hydrogen at low levels.

Barrick Mining: Significant Headwinds

Barrick Mining’s stock has also taken a significant hit recently. This was largely due to a mix of macroeconomic and operational factors. For one thing, the correction in the gold price naturally had an impact on the Canadian company. After all, the top producer earns less money with every dollar per ounce. At least the copper price remains high, near its all-time high. However, copper currently accounts for less than one-fifth of Barrick’s business.

In an inflationary environment like the current one, the gold price should actually be rising. At present, a resurgent US dollar and rising yields on US Treasury bonds, as well as on other government bonds, are holding it back. The market is likely still searching for its equilibrium here.

Added to this is Barrick’s massive investment program. As a result, the majority of the free cash flow generated in the first half of the year (USD 1.351 billion) came from Q1. In the second quarter, however, Barrick continued investing in its future, focusing on expanding and modernizing its mine portfolio. With lower cash flow, however, many income-oriented investors are steering clear of the stock.

For investors who expect gold prices to rise over the medium to long term, this therefore presents an opportunity. The stock has lost about one-seventh of its value since its August high. In addition to higher gold prices, the planned IPO of the North American gold business is seen as a key potential driver for Barrick’s stock—though this is not expected before the end of the year.

Contrarian investors currently see Mercedes as a strong automotive brand under pressure. Share buybacks and the high dividend yield could soon attract investors again. First Hydrogen is making operational progress. For this micro-cap stock, positive news from its ongoing programs will likely be enough to give the stock another strong boost. Barrick Mining is suffering from the correction in the gold price, as well as from heavy investments in its business.

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