The automobile industry is one of the largest in the world. Last year, global car and automobile sales generated revenue of $4.3 trillion. The industry’s growth prospects appear promising due to the rising adoption of electric vehicles, expanding public charging infrastructure, technological advancements, improving inventories, price cuts, etc.
Considering the industry’s bright prospects, quality auto stocks such as Subaru Corporation (FUJHY), Mazda Motor Corporation (MZDAY), and Isuzu Motors Limited (ISUZY) could be wise additions to your portfolio. These stocks are trading under $15 and are rated A (Strong Buy) in our POWR Ratings system.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the auto industry.
In March, the number of new vehicles sold in the U.S. was 1,455,030 units, up 5.1% from March 2023 and 15.5% sequentially. This increase in new vehicle sales reflects a favorable trend in the automotive industry, reflecting sustained customer demand and recovering supply chains. Furthermore, this year, easing inflation and central banks' expected interest rate cuts will likely boost automobile sales.
Additionally, the global automotive industry market is predicted to reach $6.86 trillion by 2033, growing at a CAGR of 6.8%. Moreover, investors’ interest in auto stocks is evident from the Global X Autonomous & Electric Vehicles ETF’s (DRIV) 7.9% returns over the past year.
Considering these conducive trends, let’s analyze the fundamentals of the three Auto & Vehicle Manufacturers picks, beginning with the third choice.
Stock #3: Subaru Corporation (FUJHY)
Based in Tokyo, Japan, FUJHY manufactures and sells automobiles and aerospace products in Japan, the rest of Asia, North America, Europe, and internationally. The company operates through three segments: Automotive, Aerospace, and Others.
On March 19, 2024, FUJHY and Panasonic Panasonic Energy Co., Ltd., a Panasonic Group Company, signed a basic cooperative agreement covering the supply of cylindrical automotive lithium-ion batteries.
This agreement aims to combine FUJHY’s expertise in battery materials with Panasonic’s experience in battery manufacturing. The collaboration will help meet the growing demand for high-performance lithium-ion batteries in the automotive industry.
In terms of the trailing-12-month Return on Total Capital, FUJHY’s 10.51% is 70.9% higher than the 6.15% industry average. Likewise, its 1.09x asset turnover ratio is 9.1% higher than the 1x industry average. Also, the stock’s trailing-12-month Return on Total Assets of 7.92% is 86.5% higher than the 4.25% industry average.
During the nine months that ended December 31, 2023, FUJHY’s revenue increased 24.5% year-over-year to ¥34.96 billion ($230.31 million). Its operating profit rose 73.6% from the year-ago value to ¥3.71 billion ($24.44 million). Also, profit for the period attributable to owners of parent increased 93.5% year-over-year to ¥2.99 billion ($19.69 million).
For the quarter ended March 31, 2024, FUJHY’s revenue is expected to increase 6.5% year-over-year to $7.65 billion. For the year ended March 31, 2024, FUJHY’s revenue and EPS are expected to grow 91% and 62.9% year-over-year to $30.85 billion and $1.58, respectively. Over the past year, the stock has gained 50.3%, closing the last trading session at $11.56.
FUJHY’s POWR Ratings reflect this promising outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
FUJHY has an A grade for Value and a B for Growth, Stability, and Quality. Within the Auto & Vehicle Manufacturers industry, it is ranked #4 out of 52 stocks. To see FUJHY's ratings for Momentum and Sentiment, click here.
Stock #2: Mazda Motor Corporation (MZDAY)
Headquartered in Hiroshima, Japan, MZDAY manufactures and sells passenger cars and commercial vehicles in Japan, China, North America, Europe, and internationally.
MZDAY’s trailing-12-month asset turnover ratio of 1.40x is 40.5% higher than the industry average of 1x. Likewise, the stock’s trailing-12-month Return on Common Equity of 13.59% is 19.5% higher than the industry average of 11.37%. Additionally, its 5.82% trailing-12-month Return on Total Assets is 37.3% higher than the industry average of 4.25%.
For the fiscal third quarter that ended December 31, 2023, MZDAY’s net sales increased 32.3% year-over-year to ¥3.57 trillion ($23.57 billion). Its operating income rose 82.9% over the prior-year quarter to ¥200.20 billion ($1.32 billion).
The company’s net income attributable to owners of the parent and net income per share stood at ¥165.49 billion ($1.09 billion) and ¥262.45, respectively, up 59.8% each year-over-year.
Analysts expect MZDAY’s revenue for the quarter ended March 31, 2024, to increase 3.6% year-over-year to $8.63 billion. Over the past year, MZDAY’s shares have gained 38.2%, closing the last trading session at $5.90.
It’s no surprise that MZDAY has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
It has an A grade for Value and a B for Growth, Stability, and Quality. It is ranked #3 in the same industry. Beyond what is stated above, we’ve also rated MZDAY for Momentum and Sentiment. Get all MZDAY ratings here.
Stock #1: Isuzu Motors Limited (ISUZY)
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.
In terms of the trailing-12-month EBIT margin, ISUZY’s 9.11% is 18.8% higher than the 7.67% industry average. Likewise, its 3.28% trailing-12-month CAPEX / Sales is 8.2% higher than the industry average of 3.04%. Furthermore, the stock’s 5.46% trailing-12-month net income margin is 14.7% higher than the industry average of 4.76%.
ISUZY’s net sales for the third quarter, which ended December 31, 2023, increased 8.4% year-over-year to ¥2.54 trillion ($16.77 billion). Its operating income rose 28.1% over the prior-year quarter to ¥253.56 billion ($1.67 billion).
Additionally, the company’s net income attributable to owners of the parent increased 26.7% year-over-year to ¥159.42 billion ($1.05 billion). Its net income per share came in at ¥206.31, representing a 27.1% year-over-year increase.
Street expects ISUZY’s revenue for the quarter ending September 30, 2024, to increase 0.8% year-over-year to $5.74 billion. Over the past year, the stock has gained 19.6%, closing the last trading session at $13.70.
ISUZY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Stability, Sentiment, and Quality. It is ranked #2 in the Auto & Vehicle Manufacturers industry. Click here to see ISUZY's ratings for Growth and Momentum.
What To Do Next?
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FUJHY shares were trading at $11.56 per share on Tuesday morning, down $0.00 (-0.04%). Year-to-date, FUJHY has gained 27.48%, versus a 9.52% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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