All swans were thought to be white until someone happened to come across a black one. All Toyota's were thought to be well made until someone discovered, oh, say, maybe two million cars that might not be -- part of a cautionary vehicle recall.If you are a shareholder of Toyota Motor Corp. (TM) which past GM as the largest automobile manufacturer last year -- oddly, the same year it reported its first losses (along with everyone else) -- then you now have a first hand experience of the inherent problems or uselessness in trying to predict where trouble may arise.
This is the subject of the best selling book The Black Swan by Nassim Nicholas Taleb, where he offers his personal and studied insight as to why the things that will really affect us the most are outliers, unpredictable events, that can influence social change and markets rapidly without warning.
As an investor in Toyota, you surely had every right to believe that it was among the elite manufacturers after several decades of producing high quality vehicles. That reputation has been sullied recently as reports of sticky accelerators, faulty electronic controls and malfunctioning brakes are the subject of consumer complaints, government investigations, and recalls casting doubt on car safety and smothering car sales, at least in the current market.
The following two-year chart indicates that share prices sank with the world economy to March 2009 lows around 57 and climbed up 61% to last months high near $92 per share. Toyota's black swan event has knocked the stock down $20 in a few weeks humbling management, depressing car sales and shocking shareholders. Now what?
The company stock value has gone from a capitalization of $137 billion down to $112 billion losing $25 billion fast. The company believes this fiasco may cost it $2 billion. Therefore it seems to me that Wall Street has this one valued about right.
We have heard many reports in the last few days of Toyota's competitive demise, but this is just plain silly. After all, every car company has been tarnished by various issues at one time or another. The fact that it is Toyota is why it is bigger news. If it was General Motors (GRM), sadly we might all just yawn and think, so what else it new?
Although Toyota stock is down, it is not a true value yet, but I will be watching it in case the market punishes it unduly at some point. I am also looking at options and noticed an interesting trade on July $65 puts paying $3.90, a 12% return on an annualized basis. This might be a worth while risk/reward scenario given that the strike price is 10% lower than today's market price, six months out. It is also one more indication that the stock is not seeing the kind of volatility that is associated with any real long term concern.
UPDATE: TM closed down for the day at $71.78, losing $1.17 or 2.33%. This is better than the overall market with the DJIA off 2.61% and the S&P down 3.11%.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture and planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I do not own any shares or options in TM.
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