The automotive industry's prospects are becoming increasingly optimistic thanks to staunch consumer demand for new vehicles amid easing supply-chain constraints and an accelerated shift toward EVs, spurred on by proactive government incentives. The adoption of avant-garde technologies is further bolstering the sector’s outlook.
Given the industry’s bright growth prospects, investors could channel their investments into fundamentally sound auto stocks AB Volvo (publ) (VLVLY), Stellantis N.V. (STLA), and REV Group, Inc. (REVG), trading under $30. These stocks have an overall A (Strong Buy) rating in our proprietary POWR Ratings system.
The automotive industry has demonstrated remarkable resilience despite facing numerous hurdles, such as inflationary pressures, chip shortages, and supply chain disruptions. Despite these obstacles, the industry has managed to maintain operations, cater to consumer demands, and strategically navigate pathways toward growth.
An illustration of the industry's robustness is evident in the spike in new car sales in the U.S. for August, which exhibited a substantial increase compared to the year-ago period. Global auto sales in 2023 are projected to reach 86.8 million units, higher than the prior estimate of 86.4 million units.
Global consumer demand for EVs is rising, fueled by conducive government policies, automakers’ increased commitment toward greener transportation solutions, and escalating concerns over climate change.
Tax incentives are a significant driving force for this shift in consumer preference. For instance, the Inflation Reduction Act 2022 has stipulated a tax credit of up to $7,500 for EV purchasers until 2032. This legislation, which, interestingly, also extends to used EV purchases, is a first of its kind.
The International Energy Agency’s latest projections indicate a dramatic 35% year-over-year surge in EV sales for 2023, reaching a landmark figure of 14 million units. The explosive growth suggests that EVs are set to seize a larger segment of the overall automotive market, potentially escalating to 18% by the end of 2023.
Furthermore, the soaring integration of advanced digital technologies like the Internet of Things (IoT), Artificial Intelligence (AI), and blockchain significantly transforms manufacturing procedures within the automobile sector. Techniques such as predictive maintenance using IoT sensors minimize downtime, while AI-powered analytics enhance production efficiency.
Considering these conducive trends, let's look at the fundamentals of the three best Auto & Vehicle Manufacturers stocks, starting with number 3.
Stock #3: AB Volvo (publ) (VLVLY)
VLVLY, headquartered in Gothenburg, Sweden, manufactures and sells trucks, buses, and related heavy industrial equipment in Europe, North America, South America, Asia, and Africa. The company also offers financing, insurance, rental, spare parts, preventive maintenance, service agreements, and assistance services.
On September 14, VLVLY announced that its Volvo Trucks was ramping up electric truck volumes and started serial production of heavy battery electric trucks at the Ghent factory in Belgium. Electric Volvo trucks are now built in four factories - three in Europe and one in the U.S.
On the same day, the company announced its collaboration with H2 Green Steel, securing increased volumes of near-zero emissions steel, making it a step forward on its journey towards a net zero GHG emission value chain by 2040. The production is scheduled to begin towards the end of 2025, with deliveries to VLVLY starting in mid-2026.
VLVLY pays an annual dividend of $0.68 per share, translating to a dividend yield of 3.29%. Its four-year average yield is 7.29%.
VLVLY’s trailing-12-month cash from operations of $3.41 billion is significantly higher than the industry average of $240.26 million. Also, its trailing-12-month ROCE, ROTC, and ROTA of 24.77%, 9.43%, and 5.74% are 82.2%, 38.9%, and 13.6% higher than the industry averages of 13.60%, 6.79%, and 5.05%, respectively.
In terms of forward non-GAAP P/E, VLVLY is trading at 8.30x, 52.3% lower than the industry average of 17.40x. The stock’s forward EV/Sales multiple of 1.23 is 26.6% lower than the industry average of 1.67.
During the fiscal second quarter of 2023, VLVLY’s net sales increased 18.4% year-over-year to SEK140.82 billion ($12.64 billion). Its gross income rose 35.5% year-over-year to SEK38.92 billion ($3.49 billion). Its adjusted operating income grew 58.1% from the year-ago quarter to SEK21.73 billion ($1.95 billion).
Furthermore, the company’s income for the quarter grew 2.8% year-over-year to SEK10.82 billion ($970.78 million), and its EPS was SEK5.30, an increase of 3.1% over the previous year’s quarter. Also, its operating cash flow from industrial operations rose 74.4% year-over-year to SEK12.55 billion ($1.13 billion).
Analysts expect VLVLY’s revenue and EPS for the fiscal year (ending December 2023) to increase 2.2% and 44.1% year-over-year to $47.12 billion and $2.49, respectively. Also, the company topped the consensus revenue estimates in three of the trailing four quarters, which is impressive.
VLVLY’s shares have gained 32.9% over the past year to close the last trading session at $20.67. Over the past six months, the stock gained 11.2%.
VLVLY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
VLVLY has an A grade for Stability and a B for Growth and Quality. It is ranked #9 among 56 stocks in the Auto & Vehicle Manufacturers industry.
Click here to see the other ratings of VLVLY for Value, Sentiment, and Momentum.
Stock #2: Stellantis N.V. (STLA)
Headquartered in Hoofddorp, the Netherlands, STLA designs, manufactures, distributes, and sells automobiles and light commercial vehicles, engines, transmission systems, and related products. The company’s product offerings are marketed under the Abarth, Alfa Romeo, Chrysler, Fiat, Jeep, Ram, Opel, Lancia, and Comau brand names.
On September 13, the company introduced its new and iconic Jeep Gladiator 2024, the world’s most off-road capable mid-size truck.
On September 6, STLA’s Dodge brand launched a marketing campaign for the new hybrid-electric 2024 Dodge Hornet R/T, a new addition to their muscle car family. These developments should bode well for the company.
On August 24, STLA announced the expansion of its SPOTiCAR program to the U.S. This initiative aims to streamline vehicle purchases for individuals and businesses through digital tools and specialized dealerships. Such a strategic move would enhance customer satisfaction and willingness to pay for the company’s products in the future.
STLA’s annual dividend of $1.48 per share translates to a 7.83% yield on the current price level. STLA’s four-year average dividend yield is 10.02%.
STLA’s trailing-12-month cash from operations of $25.65 billion is significantly higher than the industry average of $223.80 million. Also, its trailing-12-month ROCE and ROTC of 27.85% and 14.77% are 144.4% and 141.9% higher than its industry average of 11.39% and 6.11%, respectively.
In terms of forward non-GAAP P/E, STLA is trading at 3.02x, 78.8% lower than the industry average of 14.24x. The stock’s forward EV/Sales multiple of 0.18 is 84.5% lower than the industry average of 1.13.
For the first six months that ended June 30, 2023, STLA’s net revenues increased 11.8% year-over-year to €98.37 billion ($105.11 billion). Its adjusted operating income grew 11% year-over-year to €14.13 billion ($15.09 billion). Its profit before taxes increased 36.9% year-over-year to €13.61 billion ($14.69 billion).
In addition, the company’s net profit rose 37.2% year-over-year to €10.92 billion ($11.79 billion).
Analysts expect STLA’s revenue and EPS in the fiscal year (ending December 2023) to be $203.47 billion and $6.41, registering 6.9% and 16.1% year-over-year growths, respectively. Moreover, the company surpassed the consensus revenue estimates in each of the trailing four quarters.
The stock gained 42.1% over the past year to close its last trading session at $19.34. Over the past three months, the stock gained 11.5%.
STLA’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of A, translating to Strong Buy in our proprietary rating system.
STLA has an A grade for Value and a B for Stability, Sentiment, and Quality. It is ranked #3 within the same industry.
In addition to the POWR Ratings we’ve stated above, we also have STLA’s ratings for Growth and Momentum. Get all STLA ratings here.
Stock #1: REV Group, Inc. (REVG)
REVG designs, manufactures, and distributes specialty vehicles and related aftermarket parts and services. The company’s customized vehicle solutions cater to diverse applications, such as essential needs for public services, commercial infrastructure, and consumer leisure.
The company’s board of directors declared a quarterly dividend of $0.05 per share of common stock, payable to shareholders on October 13, 2023. Its annualized dividend rate of $0.20 per share yields 1.32% on prevailing prices. REVG’s four-year average dividend yield is 1.53%.
REVG’s trailing-12-month EBIT and net income margins of 2.78% and 0.95% are 39.8% and 783.7% higher than its five-year average of 1.99% and 0.11%, respectively.
In terms of forward EV/Sales, REVG is trading at 0.42x, 74.8% lower than the industry average of 1.67x. Its forward EV/EBITDA multiple of 7.96 is 27.5% lower than the 10.99 industry average.
For the fiscal third quarter ended July 31, 2023, REVG’s net sales stood at $680 million, up 14.3% year-over-year. Its gross profit and operating income stood at $80.20 million and $25.70 million, up 18.3% and 49.4% from the year-ago quarter, respectively. Its adjusted net income and net income per common share stood at $20.90 million and $0.35, up 46.2% and 45.8% year-over-year, respectively.
For the same quarter, its adjusted EBITDA grew 33.6% from the prior-year quarter to $39.40 million. In addition, as of July 31, 2023, its total current assets stood at $907 million, compared to $888.40 million as of October 31, 2022.
REVG’s revenue and EPS for the fiscal year ending October 2023 are expected to increase 12% and 46.7% year-over-year to $2.61 billion and $1.17, respectively. The company surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.
The stock gained 31.9% over the past six months to close its last trading session at $15.10. Over the past three months, the stock gained 16.4%.
REVG’s POWR Ratings reflect a positive outlook. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Stability, Sentiment, and Quality. REVG is ranked #2 within the Auto & Vehicle Manufacturers industry.
To see additional ratings for REVG (Momentum), click here.
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STLA shares were trading at $19.91 per share on Wednesday afternoon, up $0.57 (+2.95%). Year-to-date, STLA has gained 40.21%, versus a 17.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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