High-interest rates, supply chain issues, and recessionary fears were among the major challenges for the automotive industry in 2022. However, U.S. auto sales rose to an estimated 13.2 million rate in December last year.
Moreover, auto sales will likely rebound this year as a recovery in vehicle production amid easing supply chain disruptions is expected to mitigate the effects of inflation and increasing interest rates.
Furthermore, global climate concerns and rising gasoline and oil prices should drive demand for fuel-efficient electric vehicles (EVs) in the coming years. The auto industry continues to focus on EVs, either through enhancing battery performance or expanding charging infrastructure.
Motor Intelligence data shows that Americans purchased over 724,000 electric vehicles in the first eleven months of 2022, up from 326,000 in 2019. The global EV market is projected to reach $34.40 billion by 2031, growing at a CAGR of 20.3%.
Therefore, it could be wise to invest in fundamentally strong and quality stock General Motors Company (GM) to capitalize on the industry’s growth prospects. However, given its weak fundamentals, Mullen Automotive, Inc. (MULN) could be best avoided now.
Stock to Buy:
General Motors Company (GM)
GM manufactures and markets cars, trucks, crossovers, and automobile parts and accessories internationally. Its segments include GM North America; GM International; Cruise; and GM Financial. Additionally, it provides safety and security services to fleet and retail clients.
On January 20, 2023, GM announced its plans to invest $918 million in four U.S. manufacturing facilities, of which $854 million would be used to produce the company's sixth-generation Small Block V-8 engine, with the remaining $64 million would be used to purchase castings and other components to support the production of EVs.
These investments should allow the company to strengthen its industry-leading full-size truck and SUV business while supporting its expanding EV product portfolio.
Moreover, on December 5, 2022, GM and BrightDrop were joined by Prime Minister Justin Trudeau and Ontario Premier Doug Ford in Ingersoll, Ontario, for the official launch of Canada's first full-scale electric-vehicle production plant. GM has now taken over as the new global manufacturing home of BrightDrop’s fully electric delivery vans, thanks to investment assistance from both governments.
GM’s trailing-12-month EBITDA margin of 12.24% is 10.7% higher than the 11.05% industry average. Likewise, the stock’s trailing-12-month net income of 6.57% is 27.8% higher than the industry average of 5.14%. Furthermore, the stock’s trailing-12-month levered FCF margin of 3.34% is 154.4% higher than the 1.31% industry average.
For the third quarter that ended September 30, 2022, GM’s total net sales and revenue grew 56.4% year-over-year to $41.89 billion. Its net income attributable to stockholders grew 36.6% from the year-ago value to $3.31 billion. Also, the company’s adjusted EBIT increased 46.7% from the prior year’s period to $4.29 billion, and its adjusted EPS stood at $2.25, up 48% year-over-year.
The consensus revenue estimate of $154.51 billion for the fiscal year that ended December 2022 indicates a 21.7% year-over-year improvement. The consensus EPS estimate of $7.15 for the same year reflects a rise of 1.1% from the prior year. Furthermore, GM surpassed its consensus EPS in three of four trailing quarters, which is impressive.
Shares of GM have gained 9.5% over the past month to close the last trading session at $36.48.
GM’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Growth and a B for Value and Sentiment. In the 71-stock Auto & Vehicle Manufacturers industry, it is ranked #17.
Beyond what we stated above, we also have GM’s ratings for Stability, Quality, and Sentiment. Get all GM ratings here.
Stock to Avoid:
Mullen Automotive, Inc. (MULN)
MULN is an electric vehicle manufacturer and distributor. Its products include passenger electric vehicles and commercial vehicles, as well as solid-state polymer battery technologies.
MULN’s trailing-12-month ROTC and ROTA of negative 80.31% and negative 244.40% compare to the industry averages of 6.38% and 4.45%, respectively. Moreover, its trailing-12-month cash from operations of negative $65.80 million compares with the $96.32 million industry average.
For the fiscal year that ended September 30, 2022, MULN’s loss from operations worsened 332.9% year-over-year to $96.99 million, and the company’s net loss widened substantially year-over-year to $740.32 million. In addition, its net loss per share for the period was $2.80.
Also, as of September 30, 2022, MULN’s total liabilities came in at $145.64 million compared to $78.88 million on September 30, 2021.
The stock has plunged 63.5% over the past six months and 90% over the past year to close the last trading session at $0.32.
MULN’s poor fundamentals are apparent in its POWR Ratings. The stock has an overall rating of F, equating to a Strong Sell in our proprietary rating system.
MULN has an F grade for Value and Stability and a D for Sentiment and Quality. Within the same industry, it is ranked #57.
In addition to the POWR Ratings I’ve just highlighted, you can see MULN’s ratings for Growth and Momentum here.
GM shares were trading at $38.09 per share on Friday afternoon, up $1.61 (+4.41%). Year-to-date, GM has gained 13.23%, versus a 6.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
1 Auto Stock to Buy for 2023 and 1 to Avoid Like the Plague StockNews.com
