Motor vehicles and parts dealers' sales rose in January even as higher interest rates made purchasing a new car more expensive. Moreover, the automotive industry is expected to experience a boost due to the rapid expansion of the electric vehicle (EV) market. I think quality auto stocks General Motors Company (GM) and Honda Motor Co., Ltd. (HMC) are ideal investments in 2023.
Consumer spending appears strong despite inflation, decreasing savings, and limited credit card availability. While retail sales rose 3% in January, motor vehicle and parts dealers' sales increased 5.9%.
Moreover, rapid technological advancements, favorable government initiatives, focus on car accessories and electric vehicles (EVs) are expected to drive the motor vehicle parts sector growth.
The motor vehicle electrical and electronic equipment, steering suspension, and interiors market is expected to be the fastest-growing segment in the motor vehicle parts market. It is estimated to expand at a CAGR of 9.5% during 2021-2026.
The automotive industry look set to return to pre-pandemic levels this year with a growth of around 9%. EVs and hybrids are expected to grow by 29% year-on-year in 2023 to reach an estimated 12.1 million units globally.
Have a detailed look at the stocks mentioned above:
General Motors Company (GM)
GM designs, builds, and sells trucks, crossovers, cars, and automobile parts; and provides software-enabled services and subscriptions worldwide. The company operates through GM North America; GM International; Cruise; and GM Financial segments.
On February 21, GM’s subsidiary GM Defense LLC, and the Tawazun Council, a UAE government entity that supports defense and security investments and promotes innovation and R&D in the defense industries, signed a collaborative Memorandum of Understanding (MOU) as the first step toward a formal partnership to develop future products in the areas of advanced mobility and power solutions.
GM Defense will leverage the commercial technologies of its parent company, GM, and the battery electric investments made by GM to bring innovation to global defense and government customers.
On February 9, GM and GlobalFoundries (GFS) announced a strategic, long-term agreement establishing a dedicated capacity corridor exclusively for GM’s chip supply. Through this first-of-its-kind agreement, GF will manufacture for GM’s key chip suppliers at GF’s advanced semiconductor facility in upstate New York, bringing a critical process to the U.S.
GM’s forward EV/Sales of 0.93x is 22.7% lower than the industry average of 1.20x. Its forward Price/Sales multiple of 0.35 is 61.8% lower than the industry average of 0.93. its forward EV/EBITDA of 7.06x is 30.1% lower than the industry average of 10.10x.
On February 1, 2023, GM announced a quarterly dividend of $0.09 per share, payable on March 16, 2023. GM pays $0.36 annually as dividends. This translates to a yield of 0.88% at the current price, compared to the four-year average dividend yield of 1.97%.
GM’s revenue increased 28.4% year-over-year to $43.11 billion for the fiscal fourth quarter that ended December 31, 2022. The company’s adjusted EBIT increased 33.8% year-over-year to $3.80 billion. Its net income attributable to shareholders increased 14.8% from the year-ago period to $2 billion, while its adjusted EPS rose 57% from the prior-year quarter to $2.12.
Street expects GM’s revenue to grow 9.1% year-over-year to $39.24 billion in the current fiscal quarter (ending March 2023). Its EPS for the same quarter is expected to be $1.66. Additionally, it has topped consensus EPS estimates in three of the trailing four quarters, which is impressive
The stock has gained 20.2% year-to-date to close its last trading session at $40.45.
GM’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade in Growth and Value. The stock is ranked #21 out of 60 stores in the Auto & Vehicle Manufacturers industry.
Click here to access the additional ratings for GM for Quality, Momentum, Stability, and Sentiment.
Honda Motor Co., Ltd. (HMC)
Headquartered in Tokyo, Japan, HMC develops, manufactures, and distributes motorcycles, automobiles, power products, and other products in Japan, North America, Europe, Asia, and internationally. It operates through four segments: Motorcycle Business; Automobile Business; Financial Services Business; and Life Creation and Other Businesses.
On February 28, HMC and LG Energy Solution held the official groundbreaking ceremony for a new joint venture EV battery plant over 2 million square feet in size, to be located in Fayette County, near Jeffersonville, Ohio. The two companies have committed to invest $3.5 billion in the new joint venture facility, with their overall investment projected to reach $4.4 billion.
HMC's forward EV/Sales of 0.60x is 50% lower than the industry average of 1.20x. Its forward Price/Sales multiple of 0.35 is 62.1% lower than the industry average of 0.93, and its forward EV/EBITDA of 7.41x is 26.6% lower than the industry average of 10.10x.
HMC pays a $1.42 per share dividend annually, which translates to a 5.43% yield on the current price. Its dividend payments have grown at a CAGR of 6.7% over the past three years. The company has a four-year average dividend yield of 3.40%.
During the fiscal third quarter ended December 31, 2022, HMC’s sales revenue increased 20.3% year-over-year to ¥4.44 trillion ($33.53 billion). The company’s profit for the period grew 27.7% year-over-year to ¥207.60 billion ($2 billion), while EPS attributable to owners of the parent increased 28.5% year-over-year to ¥144.49.
HMC’s revenue is expected to rise 370.4% year-over-year to $125.65 billion for the current fiscal year ending March 2023. The company’s EPS for the same fiscal year is expected to be $3.17. Additionally, it has topped consensus revenue estimates in three of the trailing four quarters.
Shares of HMC have gained 16.4% year-to-date to close the last trading session at $26.60.
HMC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Value and a B for Quality, Sentiment, and Stability. Within the same industry, it is ranked #3.
Beyond what is stated above, we’ve also rated HMC for Growth and Momentum. Get all HMC ratings here.
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GM shares were trading at $39.92 per share on Tuesday morning, down $0.53 (-1.31%). Year-to-date, GM has gained 18.94%, versus a 4.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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