Morningstar - Q3 2020 - 20

Dispatches

Gloomy Forecast Global demand should return to normal in 2023.
Light-Vehicle Registrations

Change in Demand

100M

75

PROJECTION

78.8

81.0

83.1

87.8

92.5

92.3

88.3
79.5

87.5

92.6

20%

95.9

70.5

10

3.6

0
50
-10
25

-20

0

-30
2013

2014

2015

2016

2017

2018

2019 2020E 2021E 2022E 2023E 2024E

biased," Cook says. "These institutions could be
using their voting power and advocacy
to reduce the appalling differentials that taint
investors' portfolios."
In the U.S., investor mobilization has been
instrumental in tackling injustices for years. Cook
points to the first-ever social resolution on a
corporate ballot, when shareholders asked
chemical company Dow DOW to halt production
of napalm that the U.S. government used
in the Vietnam War. Shareholder resolutions also
played an important role in the anti-apartheid
movement as investors advocated for divestment
from South Africa.

Sources: Morningstar, Wards Intelligence.

As of the close on June 30, narrow-moat-rated
BMW stock was up 50.4% from a low of EUR
37.66 on March 19. Still, BMW's market valuation
represents a compelling 53% discount to
our EUR 120 fair value estimate. In addition to
pandemic-related uncertainty, we believe concerns
over transient higher spending to launch vehicle
electrification as well as a lower contribution
margin from electrified vehicles have caused
the market to overlook the company's narrow moat,
derived from intangible assets, including brand
strength and intellectual property.
GM shares had risen 79.3% from a low of $14.33
on March 18. Even so, the stock is trading at
an attractive 46% discount to our $48 fair value
estimate. Besides the uncertainty arising from
the coronavirus, we think the market has unfairly
discounted GM because of incredulity toward
the manufacturing efficiency of New GM after
the 2009 bankruptcy as well as consumers'
perception gap between competitors' and GM's
product quality.
Since March 18, BorgWarner shares have
rebounded 74.4% from a low of $19.73. However,
they currently trade at a compelling 43%
discount to our $60 fair value estimate.
In our opinion, because BorgWarner has a
substantial product portfolio in engine
parts, concerns about the demise of the
internal combustion engine have caused the

20

Morningstar Q3 2020

market to overly discount the company's
growth potential from vehicle electrification
and overlook BorgWarner's narrow moat
rating derived from intellectual property and
switching costs.
Richard Hilgert is a senior equity analyst with Morningstar.

Resolutions Address
Systemic Discrimination
AMERICAS

Canada

Systemic, institutionalized discrimination
contributes to the uneven distribution
of opportunities, protections, and wealth across
society. Morningstar's director of sustainability
stewardship research, Jackie Cook, notes
that shareholder resolutions are key ways for
investors to move the needle within companies
on issues of social justice. She contends
that investors have a responsibility to be part
of the change.
"The institutions representing individual investors
in the proxy process are stewards of capital
markets-markets that are inherently racially

In a first for Canadian businesses, investors in
Waste Connections WCN recently voted in
favor of a shareholder proposal that asked the
company to establish a plan to increase the
representation of women across its workforce, not
just in executive positions. The proposal received
almost 65% of the vote.
Shareholder activists and investors expect
this tradition to continue. Cook points
to close to 30 resolutions in the U.S. in 2020
that address racial diversity, inclusivity,
or discrimination. In Canada, where fewer
resolutions are filed by shareholders, several
also address Indigenous peoples' rights
and workers' rights.
"Resolutions asking for workforce, executive
management, and board diversity disclosures
continue to receive relatively strong support
in 2020-about 43% on average so far this proxy
season," Cook says. "Most resolutions ask
for a workforce breakdown by race and gender
across job categories and for an explanation
of efforts to promote inclusivity."
Amazon.com AMZN, for example, faced a
shareholder resolution asking the company to
"report on its efforts to address hate speech
and the sale or promotion of offensive products
throughout its businesses." The resolution
argued that failure to adequately enforce policies
intended to prohibit "products that promote,
incite or glorify hatred, violence, racial, sexual or
religious intolerance or promote organizations
http://www.Amazon.com
Morningstar - Q3 2020

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