Strong consumer demand for new vehicles despite a high-interest rate environment, a shift toward electric and hybrid cars, rising disposable incomes, easing supply chains, and technological advances are all expected to drive rapid growth in the automotive industry.
Given this backdrop, investors could consider buying fundamentally strong auto stocks Isuzu Motors Limited (ISUZY), Credit Acceptance Corporation (CACC), and Hyster-Yale Materials Handling, Inc. (HY) with solid upside potential.
Before delving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the auto industry.
New vehicle sales in the United States increased 5.1% between January and March, as consumers stayed in the market despite high interest rates. This increase in new vehicle sales reflects a favorable trend in the automotive industry, reflecting sustained customer demand and recovering supply chains.
According to a Spherical Insights report, the global automotive market is expected to reach $6.86 trillion by 2033, expanding at a CAGR of 6.8%. In addition, online car sales are expected to rise dramatically, reaching between 7.10 million and 7.30 million units by 2024.
Besides, the global auto parts and accessories market is estimated to total $1.09 trillion by 2031, growing at a 5.7% CAGR. This growth can be attributed to several factors, including increasing vehicle production and sales worldwide. Additionally, the rising usage of advanced components in today’s cars requires more maintenance and frequent replacements.
Car rental and leasing markets are becoming more popular for remote and long-distance travel, with the industry estimated to reach $1.35 trillion by 2032, rising at a CAGR of 8%.
Moreover, investors’ interest in auto stocks is evident from the First Trust S-Network Future Vehicles & Technology ETF’s (CARZ) 18.2% returns over the past year.
Considering these conducive trends, let’s analyze the fundamentals of the three auto stocks mentioned above.
Isuzu Motors Limited (ISUZY)
Headquartered in Tokyo, Japan, ISUZY manufactures and sells commercial vehicles, light commercial vehicles, and diesel engines and components worldwide. Its product portfolio includes heavy-duty and medium-duty trucks, buses, light-duty trucks, passenger pickup vehicles, pickup trucks, SUVs, and marine and industrial engines.
On March 19, 2024, ISUZY introduced its first-ever D-MAX BEV pickup truck. It will be launched in Europe by 2025 and later in Australia, Thailand, and other global markets. The truck features a full-time 4WD system with e-Axles, a remarkable towing capacity, and a commitment to carbon neutrality. It aims to meet diverse commercial and passenger vehicle needs.
On March 6, 2024, ISUZY and TIER IV partnered to develop Level 4 autonomous driving systems for route buses. ISUZY invested ¥6 billion ($38.76 million) in TIER IV to accelerate technology development, using TIER IV's open-source autonomous driving software knowledge and ISUZY’s expertise in the route bus sector.
This partnership aims to enhance safety, efficiency, and convenience in public transportation. By combining the companies’ strengths, ISUZY and TIER IV are working toward revolutionizing the future of autonomous driving in route buses.
ISUZY’s trailing-12-month CAPEX/Sales of 3.28% is 7.6% higher than the industry average of 3.05%. Likewise, its trailing-12-month net income margin of 5.46% is 18.2% higher than the industry average of 4.62%. Also, the stock’s trailing-12-month EBITDA margin of 12.59% is 13.9% higher than the industry average of 11.06%.
ISUZY’s net sales for the first nine months, which ended on December 31, 2023, increased 8.4% year-over-year to ¥2.54 trillion ($16.35 billion). Its operating income rose 28.1% over the prior-year quarter to ¥253.56 billion ($1.63 billion). Its net income attributable to owners of parent increased 26.7% year-over-year to ¥159.42 billion ($1.03 billion).
Additionally, the company's net income per share came in at ¥206.31, representing a 27.1% year-over-year increase.
Analysts expect ISUZY’s revenue for the fiscal year (ending March 2024) to increase 125.3% year-over-year to $21.69 billion. Over the past six months, the stock has gained 10.2% to close the last trading session at $12.34.
ISUZY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ISUZY is ranked #4 out of 51 stocks in the Auto & Vehicle Manufacturers industry. It has an A grade for Value and Stability. The stock also has a B grade for Quality.
To see ISUZY’s Growth, Momentum, and Sentiment ratings, click here.
Credit Acceptance Corporation (CACC)
CACC offers financing programs and other related products and services to automobile dealers. Additionally, it provides reinsurance coverage under vehicle service contracts sold to consumers by dealers on vehicles financed by the company.
CACC’s trailing-12-month gross profit margin of 91.95% is 53% higher than the industry average of 60.11%. Its 28.95% trailing-12-month net income margin is 25.8% higher than the 23.01% industry average. Likewise, its trailing-12-month ROTA of 3.10% is 191.8% higher than the 1.06% industry average.
In the first quarter that ended March 31, 2024, CACC’s revenue increased 11.9% year-over-year to $508 million. The company reported an adjusted net income of $117.40 million and $9.28 per share, respectively. As of March 31, 2024, its total assets amounted to $8.10 billion, compared to $7.61 billion as of December 31, 2023.
Street expects CACC’s revenue for the second quarter ending June 30, 2024, to increase 9.9% year-over-year to $525.40 million. Also, the company’s revenue and EPS for the year ending December 31, 2025, are expected to grow 11.1% and 21.1% year-over-year to $2.34 billion and $42.16, respectively.
Over the past six months, shares of CACC have surged 22.3% to close the last trading session at $513.99.
CACC’s POWR Ratings reflect its positive outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system.
In the Auto Dealers & Rentals industry, CACC is ranked #2 out of 21 stocks. It has an A grade for Quality and a B for Growth and Stability. Click here to see CACC’s POWR ratings for Value, Momentum, and Sentiment.
Hyster-Yale Materials Handling, Inc. (HY)
HY designs, engineers, manufactures, sells, and services a line of lift trucks, attachments, and aftermarket parts globally. The company markets its products primarily under the Hyster and Yale brand names to independent Hyster and Yale retail dealerships.
On May 8, 2024, HY's Board of Directors increased its regular cash dividend from 32.5 cents ($0.325) to 35 cents ($0.35) per share. The dividend will be paid on June 14, 2024, to shareholders of record at the close of business on May 31, 2024.
HY pays an annual dividend of $1.30, which translates to a yield of 2.20% at the current share price. Its four-year average dividend yield is 2.92%. Moreover, the company has raised its dividend for 11 consecutive years.
In terms of forward EV/Sales, HY is trading at 0.37x, 79.6% lower than the industry average of 1.79x. Similarly, the stock’s forward EV/EBIT and Price/Sales of 6.79x and 0.25x are lower than the industry averages of 16.01x and 1.48x, respectively.
For the first quarter that ended March 31, 2024, HY’s revenues increased 5.7% year-over-year to $1.06 billion. Its operating profit was $83.80 million, up 96.7% from the year-ago quarter. The company’s net income and EPS rose 93.6% and 89% year-over-year to $51.50 million and $2.93, respectively.
Analysts expect HY’s EPS to increase 370.5% year-over-year to $0.44 for the current quarter ending June 2024. Further, the company’s revenue and EPS for the fiscal year 2025 are expected to grow 2% and 25.8% from the prior year to $4.28 billion and $8.93, respectively.
Over the past six months, HY’s stock has soared 64.4% to close the last trading session at $72.92.
HY’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
HY has an A grade for Value and a B for Growth and Sentiment. Within the A-rated Auto Parts industry, it is ranked #13 out of 61 stocks.
Beyond the mentioned above grades, we have also rated HY for Momentum, Stability, and Quality. Get all HY ratings here.
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ISUZY shares were trading at $12.46 per share on Thursday morning, up $0.12 (+0.97%). Year-to-date, ISUZY has gained 0.89%, versus a 9.39% 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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