Semiconductor shortages and supply chain issues affected vehicle production and inventory levels in the past two years. However, factories are stepping up their pace as consumers intend to buy more vehicles this year.
U.S. auto sales rose to an estimated 13.2 million rate in December 2022. Moreover, auto sales will likely rebound this year, driven by growing demand and a recovery in vehicle production amid easing supply chain disruptions and chip recovery that will offset the effects of inflation and increasing interest rates.
Furthermore, the automotive industry continues to focus on developing electric vehicles (EVs), whether it is through improving battery performance or increasing charging infrastructure. According to Motor Intelligence data, Americans purchased over 724,000 EVs in the first eleven months of 2022, compared to 326,000 EVs acquired in 2019.
The global EV market is projected to reach $34.40 billion by 2031, growing at a CAGR of 20.3%. Increasing global climatic concerns and surging gasoline and oil prices should drive the demand for fuel-efficient EVs in the upcoming years.
Hence, to capitalize on the industry's promising growth prospects, it could be wise to invest in fundamentally sound auto stocks General Motors Company (GM) and Mazda Motor Corporation (MZDAY), trading currently at discounted valuations.
General Motors Company (GM)
GM builds and markets trucks, crossovers, and cars, along with auto parts and accessories, all over the world. It operates through GM North America; GM International; Cruise; and GM Financial segments. It also offers its customers safety and security services.
On January 4, 2023, GM announced that it delivered 2.20 million vehicles in the United States, leading the industry in overall sales. It also extended its leadership in significant market sectors, such as full-size pickups, full-size SUVs, and more. The company intends to capitalize on this momentum in North America in 2023 by increasing its EV market share with nine models on the market.
This new agreement should strengthen GM's leadership in creating a secure and long-lasting North American EV supply chain.
Moreover, on November 17, 2022, GM and Vale Canada Limited, a division of Vale S.A. (VALE), announced the signing of a term sheet for the long-term supply of battery-grade nickel sulfate from VALE's proposed Bécancour, Quebec, Canada factory. This agreement is expected to help GM meet its rapidly increasing EV production requirement in North America.
In terms of forward non-GAAP P/E, GM is currently trading at 5.00x, 64.2% lower than the industry average of 13.94x. The stock’s forward EV/Sales of 0.94x is 20.7% lower than the industry average of 1.19x. Also, its forward EV/EBITDA of 5.64x compares with the 9.79x industry average.
For the third quarter that ended September 30, 2022, GM’s revenue increased 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.
GM pays a $0.18 per share dividend annually, which translates to a 0.50% yield on the current price level. Its four-year average dividend yield is 2.08%.
Analysts expect GM’s revenue to increase 21.5% year-over-year to $154.27 billion for the fiscal year that ended December 2022. Also, the consensus EPS estimate of $7.15 for the same year indicates an increase of 1.1% year-over-year. Moreover, GM surpassed its consensus EPS estimates in three of four trailing quarters.
Shares of GM have gained 3.9% over the past six months to close the last trading session at $35.73.
GM’s POWR Ratings reflect its solid fundamentals. 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 65-stock Auto & Vehicle Manufacturers industry, it is ranked #17. To see additional POWR Ratings for Stability, Quality, and Momentum for GM, click here.
Mazda Motor Corporation (MZDAY)
Headquartered in Hiroshima, Japan, MZDAY manufactures and sells passenger cars and commercial vehicles globally. The company's main offerings include four-wheeled vehicles, gasoline reciprocating engines, diesel engines, and automatic and manual transmissions for automobiles.
On January 13, 2023, MZDAY introduced the Mazda MX-30 e-Skyactiv R-EV, a plug-in hybrid vehicle powered by a rotary engine. The MX-30 e-Skyactiv R-EV is a series plug-in hybrid that maintains the same consumer value as the original MX-30 while allowing owners to use their car as a battery-electric vehicle in new ways. With an aim to improve driving experiences for its customers, MZDAY could benefit from this new launch.
On November 22, 2022, MZDAY announced a $10.60 billion expenditure plan to electrify its vehicles. The company also reported that it had been thinking about investing in the production of batteries. The firm increased its goal of selling EVs to 40% of its global sales by 2030. MZDAY also intends to launch fully electric vehicles on a large scale between 2028 and 2030.
In terms of forward EV/Sales, MZDAY is trading at 0.15x, 87.3% lower than the industry average of 1.19x. The stock’s forward EV/EBITDA of 2.32x is 76.3% lower than the industry average of 9.79x.
For the fiscal 2023 second quarter ended September 30, 2022, MZDAY’s net sales increased 48.1% year-over-year to ¥1.03 trillion ($7.94 billion), and its gross profit grew 59% from the year-ago value to ¥224.02 billion ($1.74 billion). The company’s operating income rose 448.4% from the prior year’s quarter to ¥74.77 billion ($579.31 million).
Also, MZDAY’s net income grew 468.1% year-over-year to ¥71.22 billion ($551.81 million), while its EPS came in at ¥136.19, up 259.9% year-over-year.
The company pays a $0.15 per share dividend annually, which translates to a 4.06% yield on the current price level. Its four-year average dividend yield is 2.62%.
The consensus revenue estimate of $30.72 billion for the current fiscal year (ending March 2023) reflects a growth of 69.8% from the previous year. Moreover, the consensus revenue estimate of $33.78 billion for the next fiscal year indicates a 10% year-over-year improvement.
The stock slumped 2.9% intra-day to close the last trading session at $3.66.
MZDAY’s strong outlook is reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. It also has an A grade for Value and Growth and a B for Quality. Within the same industry, it ranks #5 of 65 stocks.
Beyond what we stated above, we also have MZDAY’s ratings for Stability, Sentiment, and Momentum. Get all MZDAY ratings here.
GM shares were trading at $35.94 per share on Friday afternoon, up $0.21 (+0.59%). Year-to-date, GM has gained 6.84%, versus a 2.76% 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.
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