Sales of new vehicles in the United States are expected to rise in March, given the pent-up demand for cars and trucks. Therefore, investing in auto stock Gates Industrial Corporation plc (GTES), JTEKT Corporation (JTEKY), and Garrett Motion Inc. (GTX), which are Strong Buy-rated in our POWR Ratings system, could be wise. These stocks are currently trading under $25.
According to a report, total new-vehicle sales for this month, including retail and non-retail transactions, are expected to reach 1.33 million vehicles, a 6.2% increase from March 2022.
Jeff Schuster, president global forecasts at LMC Automotive said, “...while there are some warning signs in the banking industry and with the general economy, the outlook for global vehicle sales has been increased by 200,000 from a month ago to 86.1 million units, up 6.2% from 2022.” Also, supply disruption is expected to continue to ease.
The automotive parts aftermarket market in the U.S. is estimated to grow at a CAGR of 7.7% until 2027. The market is expected to grow by $30.83 billion.
Furthermore, the automotive service market is also expected to grow at a CAGR of 7.7% until 2027.
Let’s delve deeper into the fundamentals of the stocks mentioned to see why they are the best picks to capitalize on the industry’s recovery prospects.
Gates Industrial Corporation plc (GTES)
GTES manufactures and sells engineered power transmission and fluid power solutions worldwide. It offers synchronous or asynchronous belts, including V-belts, CVT belts, and Micro-V belts. The company provides its products to replacement channel customers and original equipment manufacturers as specified components.
In terms of forward EV/EBITDA multiple, GTES is trading at 8.62 is 17.3% lower than the industry average of 10.43. In addition, GTES’ forward EV/EBIT of 13.08x is 10.2% lower than the industry average of 14.57x.
GTES’ trailing-12-month EBITDA margin of 17.36% is 30.2% higher than the industry average of 13.34%. Its trailing-12-month gross profit margin of 35.25% is 21.2% higher than the industry average of 29.08%.
GTES’ net sales increased 9.5% year-over-year to $893.30 million in the fourth quarter, which ended December 31, 2022. The company’s adjusted EBITDA grew 18.9% year-over-year to $166 million, while its net income came in at $84.9 million, representing a 35.4% year-over-year increase. Also, its EPS was $0.30, up 42.9% year-over-year.
The consensus revenue estimate of $3.77 billion for the year ending 2024 represents a 3.8% increase year-over-year. Its EPS to grow 15.3% year-over-year to $1.36 in 2024. It surpassed the EPS estimates in three of four trailing quarters. GTES has gained 36.9% over the past six months to close the last trading session at $13.58.
GTES’ weak 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 POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is also rated a B in Growth, Value, Stability, and Quality. In the A-rated Auto Parts industry, it is ranked first among 59 stocks. Click here to see GTES’ rating for Sentiment and Momentum.
JTEKT Corporation (JTEKY)
Headquartered in Aichi, Japan, JTEKY manufactures and sells steering systems, driveline components, bearings, machine tools, electronic control devices, home accessory equipment, etc.
In terms of forward EV/EBITDA multiple, JTEKY is trading at 4.12 is 55.3% lower than the industry average of 9.22. In addition, JTEKY’s forward EV/EBIT of 8.82x is 31.9% lower than the industry average of 12.96x.
JTEKY’s trailing-12-month asset turnover ratio of 1.19% is 17.2% higher than the industry average of 1.02%.
For the nine months ended on December 31, 2022, JTEKY’s revenues increased 19.9% year-over-year to ¥1.22 trillion ($9.23 billion). Its profit came in at ¥18.33 billion ($138.19 million), up 80.9% year-over-year, while its EPS came in at ¥53.43, up 80.9% from its year-ago period.
Street expects JTEKY’s revenue to increase 3.3% year-over-year to $13.04 billion in 2024. The stock has gained 2.1% over the past year to close the last trading session at $22.90.
It’s no surprise that JTEKY has an overall A rating, which indicates a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Stability, Momentum, and Quality. JTEKY is ranked #4 in the same industry. To see additional JTEKY ratings for Growth and Sentiment, click here.
Garrett Motion Inc. (GTX)
GTX provides turbocharger and electric boosting technologies for the automotive industry. The company offers light-vehicle gasoline, light-vehicle diesel, and commercial vehicle turbochargers; and provides automotive software solutions.
GTX’s forward Price/Sales multiple of 0.13x is 84.5% lower than the industry average of 0.84x. Its forward EV/EBITDA multiple of 2.42x is 73.7% lower than the industry average of 9.22x.
GTX’s trailing-12-month EBITDA margin of 16.43% is 43.7% higher than the industry average of 11.43%. Its trailing-12-month EBIT margin is 14.10% is 80.9% higher than the industry average of 7.79%.
During the fiscal fourth quarter that ended December 31, 2022, GTX’s net sales rose 4.2% year-over-year to $898 million. Its gross profit grew 3.9% from its prior-year quarter to $161 million. The company’s adjusted EBITDA increased 8.5% year-over-year to $140 million.
Analysts expect GTX’s EPS to increase 18.5% year-over-year to $1.09 in 2024. Its revenue is expected to increase 6.1% year-over-year to $3.94 billion in 2024. Over the past six months, the stock has gained 25.9% to close the last trading session at $7.44.
GTX has an overall A rating, equating to a Strong Buy in our proprietary rating system. In addition, it has an A grade for Value and a B for Growth, Momentum, and Quality. GTX is ranked #3 in the same industry. Beyond what is stated above, we’ve also rated GTX for Sentiment and Stability. Get all the GTX ratings here.
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GTES shares were trading at $13.75 per share on Thursday morning, up $0.17 (+1.25%). Year-to-date, GTES has gained 20.51%, versus a 6.01% 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.
3 Auto Stocks Under $25 Rated ‘Strong Buy’ According to the POWR Ratings StockNews.com
