The auto industry is fueled by rising demand for personal and commercial vehicles and the growing demand for rental cars in emerging economies. Given the industry’s steady growth prospects, investors could consider quality stocks Suzuki Motor Corporation (SZKMY), Compagnie Générale des Établissements Michelin Société en commandite par actions (MGDDY), and AutoNation, Inc. (AN) that could transform into a financial triumph.
The automotive market is expected to keep growing in the coming years because of the rising demand for personal and commercial vehicles, the rise of new technologies like electric and self-driving cars, and the growing awareness of consumer safety and environmental issues.
The global automotive market is expected to grow to $28.70 billion by 2030 at a CAGR of 4.5%.
Despite the difficulty in production and logistics due to some plants being closed due to UAW labor strikes, US vehicles sales remained resilient. In October, new vehicle sales in the United States hit 1,211,141 units, up 2% year-on-year.
Furthermore, the global car rental market is expected to grow steadily in the coming years due to an increase in tourism, business travel, and the rising popularity of car-sharing services. The market is also driven by the growing demand for rental cars in emerging economies, where car ownership is lower and public transportation systems are less developed.
The global car rental market is projected to reach a value of $126.60 billion by 2028 at a CAGR of 4.3%.
With these favorable trends in mind, let's delve into the fundamentals of the best auto stocks.
Suzuki Motor Corporation (SZKMY)
Headquartered in Hamamatsu, Japan, SZKMY engages in the manufacturing and marketing of automobiles, motorcycles, and marine products in Japan, rest of Asia, Europe, North America, and internationally.
SZKMY’s trailing-12-month ROTC of 7.54% is 25.4% higher than the industry average of 6.01%, while its trailing-12-month ROTA of 4.68% is 18% higher than the industry average of 3.17%.
During the first six months ended September 30, 2023, SZKMY’s net sales increased 34.3% year-over-year to ¥2.56 trillion ($17.15 million). The company’s gross profit for the period increased 21.2% year-over-year to ¥665.83 billion ($4.45 billion). Profit attributable to owners of parent increased 12.4% year-over-year to ¥129.35 billion ($865.25 million).
Street expects SZKMY’s revenue to be $8.98 billion for the fiscal third quarter ending December 2023. Also, the company topped the consensus revenue estimates in each of the four trailing quarters, which is impressive.
Over the past six months, the stock has gained 20.8% to close the last trading session at $159.95.
SZKMY’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates 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.
The stock has an A grade for Stability and a B in Growth, Value, and Quality. It is ranked #3 out of 51 stocks in the B-rated Auto & Vehicle Manufacturers industry.
Click here to see the other ratings of Sentiment and Momentum.
Compagnie Générale des Établissements Michelin Société en commandite par actions (MGDDY)
Headquartered in Clermont-Ferrand, France, MGDDY is one of the world leaders in manufacturing and marketing of tires. The products are mainly sold under the Michelin, BFGoodrich, Kleber, Uniroyal and Taurus brands.
On September 27, 2023, MGDDY completed the acquisition of Flex Composite Group and creates a leader in high-tech engineered fabrics and films.
MGDDY’s trailing-12-month EBIT margin of 8.33% is 10.9% higher than the industry average of 7.52%. Its trailing-12-month asset turnover ratio of 1.04x is 4.5% higher than the industry average of 0.99x.
MGDDY’s sales increased 6% year-over-year to €14.08 billion ($15.40 billion) during the first half year ended September 30, 2023. Net income grew 44.7% from the prior-year period to €1.22 billion ($1.33 billion). The company’s EPS improved 44.1% from the year-ago period to €1.70.
The consensus revenue of $31.27 billion for the fiscal year ending December 2023 represents a 2% increase year-over-year. Its EPS is expected to be $1.67 for the same year. Also, the company topped the consensus revenue estimates in each of the four trailing quarters.
MGDDY’s shares have gained 17.8% over the past year to close the last trading session at $16.28.
MGDDY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has an A grade for Stability and a B in Quality and Value. Within the A-rated Auto Parts industry, it is ranked #10 out of 61 stocks.
Beyond what is stated above, we’ve also rated MGDDY for Momentum, Growth and Sentiment. Get all MGDDY ratings here.
AutoNation, Inc. (AN)
AN operates as an automotive retailer in the United States. The company operates through three segments, Domestic; Import; and Premium Luxury.
On October 31, 2023, AN announced the official launch of AutoNationParts.com, a new eCommerce website enabling Customers to purchase high-quality automotive parts and accessories at competitive prices, shipped directly to their homes.
AN’s trailing-12-month ROTC and ROTA of 12.40% and 9.71% are 106.3% and 144.6% higher than the industry averages of 6.01% and 3.97%, respectively.
In the fiscal third quarter that ended September 30, 2023, AN’s revenue increase 3% year-over-year to $6.89 million, while adjusted operating income came at $415.80 million. For the same quarter, adjusted net income and adjusted earnings per share stood at $243.70 million and $5.54, respectively.
Street expects AN’s revenue for the fiscal year ending December 2023 to be $26.76 billion. Its EPS is expected to be $22.86 for the same year. Also, the company topped the consensus EPS estimates in each of the four trailing quarters.
The stock gained 25.9% year-to-date to close the last trading session at $135.05.
It’s no surprise that AN has an overall rating of B, which equates to Buy in our proprietary rating system.
AN has a B grade for Value. Within the Auto Dealers & Rentals industry, it is ranked #6 out of 21 stocks.
In addition to the POWR Ratings we’ve stated above, we also have AN’s ratings for Momentum, Growth, Sentiment, Quality, and Stability. Get all AN ratings here.
What To Do Next?
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SZKMY shares were trading at $165.50 per share on Monday afternoon, up $5.56 (+3.47%). Year-to-date, SZKMY has gained 28.71%, versus a 20.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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