The auto industry thrives on robust demand, rising disposable incomes, rapid technological progress, government incentives, and improved supply chains. Despite facing challenges like supply chain constraints, high sticker prices, and elevated interest rates, flexible financing options, discounts, and rising electric vehicle sales are likely to boost the industry’s growth.
Furthermore, the anticipated interest rate cuts this year are expected to fuel further industry expansion. Given this backdrop, investors could consider buying fundamentally strong auto stocks Isuzu Motors Limited (ISUZY), Honda Motor Co., Ltd. (HMC), and Subaru Corporation (FUJHY) for solid gains. These stocks are all A-rated in our proprietary POWR Ratings system.
The auto industry has showcased notable improvement compared to the previous year. In March, the United States witnessed a surge in new vehicle sales, reaching 1.46 million units, marking a 5.1% uptick from the same month in 2023. The global automotive industry is projected to grow at a 6.8% CAGR, reaching $6.86 trillion by 2033.
Moreover, global sales of light vehicles are projected to hit 89.1 million units this year, growing by 3% from last year. This potential growth highlights the benefits the sector is achieving from ongoing promotions, easing supply chains, adoption of EVs and hybrid vehicles, technological advancements like AI in vehicle manufacturing, and rising disposable incomes.
Investors’ interest in auto stocks is evident from the First Trust S-Network Future Vehicles & Technology ETF’s (CARZ) 13.2% returns over the past year.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Auto & Vehicle Manufacturers picks, beginning with the third choice.
Stock #3: Isuzu Motors Limited (ISUZY)
Headquartered in Tokyo, Japan, ISUZY manufactures and sells commercial vehicles, light commercial vehicles, and diesel engines and components worldwide. Its products include heavy-duty and medium-duty trucks, buses, light-duty trucks, passenger pickup vehicles, pickup trucks, SUVs, and marine and industrial engines.
On March 19, 2024, ISUZY unveiled its debut D-MAX BEV pickup truck, set for release in Europe by 2025 and later in Australia, Thailand, and other markets worldwide. The truck boasts a full-time 4WD system with e-Axles, impressive towing capacity, and a dedication to carbon neutrality, catering to various commercial and passenger vehicle demands while enhancing lives.
On March 6, 2024, ISUZY and TIER IV joined forces in a capital and business alliance to create Level 4 autonomous driving systems for route buses. ISUZY invested ¥6 billion ($38.76 million) in TIER IV to expedite technology development and deployment, leveraging TIER IV's open-source autonomous driving software expertise and ISUZY’s route bus sector experience.
In terms of the trailing-12-month EBIT margin, ISUZY’s 9.11% is 19.9% higher than the 7.60% industry average. Likewise, its 12.59% trailing-12-month EBITDA margin is 13.9% higher than the industry average of 11.05%. Furthermore, the stock’s 3.28% trailing-12-month Capex / Sales is 8% higher than the industry average of 3.04%.
ISUZY’s net sales for the third quarter, which ended on December 31, 2023, increased 8.4% year-over-year to ¥2.54 trillion ($16.41 billion). Its operating income rose 28.1% over the prior-year quarter to ¥253.56 billion ($1.64 billion).
Additionally, the company's net income attributable to owners of the parent increased 26.7% year-over-year to ¥159.42 billion ($1.03 billion). Its net income per share came in at ¥206.31, representing a 27.1% year-over-year increase.
Analysts expect ISUZY’s revenue for fiscal 2024, to increase 129.9% year-over-year to $22.14 billion. Over the past year, the stock has gained 9.7% to close the last trading session at $12.58.
ISUZY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #6 out of 51 stocks in the Auto & Vehicle Manufacturers industry. It has an A grade for Value and a B for Stability and Quality. To see ISUZY’s Growth, Momentum, and Sentiment ratings, click here.
Stock #2: Honda Motor Co., Ltd. (HMC)
Headquartered in Tokyo, Japan, HMC develops, manufactures, and distributes motorcycles, automobiles, power, and other products in Japan, North America, Europe, Asia, and internationally. It operates through four segments: Motorcycle Business, Automobile Business, Financial Services Business, and Power Product and Other Businesses.
On April 16, 2024, HMC announced the launch of its new EV series called the Ye Series, including models Ye P7 and Ye S7, and the Ye GT CONCEPT for the Chinese market, aiming to introduce a total of six Ye Series models in China by 2027.
On March 15, 2024, HMC and Nissan announced a feasibility study for a strategic partnership in vehicle electrification and intelligence. The partnership aims to accelerate efforts towards carbon neutrality and enhanced automotive technologies.
In terms of the trailing-12-month net income margin, HMC’s 4.84% is 6.4% higher than the 4.55% industry average. Likewise, its 13.08% trailing-12-month EBITDA margin is 18.3% higher than the industry average of 11.05%. Furthermore, the stock’s 7.29% trailing-12-month levered FCF margin is 35.5% higher than the industry average of 5.38%.
For the nine months ended December 31, 2023, HMC’s sales revenue increased 19.8% year-over-year to ¥15 trillion ($96.91 billion). Its operating profit rose 46.7% year-over-year to ¥1.08 trillion ($6.98 billion). HMC’s profit for the period grew 45.9% over the prior-year quarter to ¥924.69 billion ($5.97 billion). Also, its EPS stood at ¥176.78, up 54.9% year-over-year.
For the quarter ended March 31, 2024, HMC’s revenue is expected to increase 9.4% year-over-year to $35.64 billion. Its EPS for fiscal 2025 is expected to increase 3.3% year-over-year to $2.74. Over the past year, the stock has gained 33.4% to close the last trading session at $34.58.
HMC’s solid prospects are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Stability and a B for Growth, Value, and Quality. Within the same industry, it is ranked #4. Beyond the grades mentioned above, we have also rated HMC for Momentum and Sentiment. Get all ratings here.
Stock #1: Subaru Corporation (FUJHY)
Headquartered in Tokyo, Japan, FUJHY manufactures and sells automobiles and aerospace products in Japan, the rest of Asia, North America, Europe, and internationally. It operates through three segments: Automotive, Aerospace, and Others.
In terms of the trailing-12-month Return in Common Equity, FUJHY’s 15.64% is 39.9% higher than the 11.18% industry average. Its 7.92% trailing-12-month Return on Total Assets is 91.4% higher than the industry average of 4.14%. Moreover, its 1.09x trailing-12-month asset turnover ratio is 9.2% higher than the industry average of 1x.
FUJHY’s revenues for the nine months that ended December 31, 2023, increased 24.5% year-over-year to ¥3.50 trillion ($22.61 billion). Its operating profit rose 73.6% from the year-ago value to ¥370.99 billion ($2.40 billion).
For the same period, its profit for the period attributable to owners of the parent increased 93.5% year-over-year to ¥298.86 billion ($1.93 billion), and its profit for the period per share attributable to owners of the parent rose 95.9% from the year-ago value to ¥394.47.
Street expects FUJHY’s revenue for the quarter ended March 31, 2024, to increase 0.6% year-over-year to $7.23 billion. Likewise, its EPS for the fiscal 2024 is expected to increase 57.5% year-over-year to $1.53. Over the past year, the stock has gained 38.1% to close the last trading session at $10.70.
FUJHY’s POWR Ratings reflect its positive outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
In the Auto & Vehicle Manufacturers industry, it is ranked #2. It has an A grade for Value and a B for Growth, Stability, and Quality. Click here to see FUJHY’s Momentum and Sentiment ratings.
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HMC shares were trading at $34.60 per share on Wednesday morning, up $0.02 (+0.06%). Year-to-date, HMC has gained 11.94%, versus a 6.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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