The automotive industry is currently marked by a global surge in electric vehicle adoption, the transformative impact of autonomous vehicles, and the growing significance of connectivity and IoT technologies in vehicles.
Given the industry’s solid growth prospects, investing in quality auto stocks Volkswagen AG (VWAGY), Bridgestone Corporation (BRDCY), and Gates Industrial Corporation plc (GTES) could be wise.
Before delving deeper into the fundamentals of these stocks, let’s see what’s shaping the industry's prospects.
The automotive aftermarket industry is experiencing robust growth, driven by increased online sales, a trend of maintaining vehicles longer, and adaptability to shifting customer preferences amid the transition from internal combustion engines (ICE) to electric vehicles.
The value added in the automotive products market is projected to grow at a CAGR of 3.3% between 2023 and 2028.
The growth of the electric vehicle market is driven by increasing consumer interest, advancements in charging infrastructure, and affordability improvements. Government incentives, environmental consciousness, and major automaker investments further contribute to the positive trajectory of electric vehicles.
The U.S. electric vehicle market is forecasted to achieve $70.1 billion in revenue in 2023 and grow at a CAGR of 18.2% to reach $161.6 billion by 2028.
Growing demand in the automotive service industry is fueled by aging vehicles, technological complexities favoring professional expertise, a shift from DIY to professional repairs, and the influence of changing emission regulations.
U.S. new vehicle sales are expected to increase by 10.2% in November, reaching 1,236,000 units, driven by strong demand for new models and improved inventories. Despite a 1.9% year-on-year decline in transaction prices, the market shows growth potential, with J.D. Power and GlobalData raising the annual forecast for global light-vehicle sales to 89.3 million units, up 10% from last year.
The global automotive AI market is anticipated to grow at a CAGR of 24.1% and reach $7 billion by 2027.
Considering these conducive trends, let’s examine the fundamentals of the three auto stock picks.
Volkswagen AG (VWAGY)
Based in Wolfsburg, Germany, VWAGY is a global automotive company that operates in four main segments: Passenger Cars and Light Commercial Vehicles; Commercial Vehicles; Power Engineering; and Financial Services. The company manufactures and sells vehicles globally under various brand names, including Volkswagen, Audi, and Porsche.
On November 2, VWAGY's Elli brand launched Elli Fleet Charging, a solution for managing electric vehicle fleets in Germany, Italy, Spain, and Austria. Over 650 companies are already using the product to optimize electric fleet charging with features like integrated billing and turnkey solutions. Expansion to include at-work charging is planned for April next year, aligning with VWAGY's commitment to a seamless charging experience and decarbonization.
VWAGY’s trailing-12-month net income margin of 4.66% is 5% higher than the industry average of 4.44%. Its 11.27% trailing-12-month levered FCF margin is significantly higher than the 5.18% industry average.
For the third quarter, which ended September 29, 2023, VWAGY's revenue increased 11.6% from the year-ago quarter to €78.85 billion ($85.98 billion). The company generated operating results of €4.89 billion ($5.31 billion), up 14.9% year-over-year. Its cash flows from operating activities and net cash flow stood at €8 billion ($8.72 billion) and €2.47 billion ($2.69 billion), respectively.
For fiscal year 2023, VWAGY anticipates delivering between 9 and 9.5 million vehicles to customers. Also, the company expects its group sales revenue to increase by 10% to 15% compared to the previous fiscal year.
Street expects VWAGY’s revenue and EPS to grow 13.6% and 74.5% year-over-year to $340.52 billion and $5.55, respectively, for the fiscal year ending December 2023. The company surpassed the revenue estimates in three of the trailing four quarters, which is impressive.
VWAGY shares increased 5.4% over the past month to close the last trading session at $12.71.
VWAGY’s POWR Ratings reflect its robust prospects. The stock has an overall rating of A, equating 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.
VWAGY has an A grade for Value and a B for Growth, Stability, and Sentiment. Within the B-rated Auto & Vehicle Manufacturers industry, it is ranked #6 out of 51 stocks.
In addition to the POWR Ratings stated above, one can access VWAGY’s additional Momentum and Quality ratings here.
Bridgestone Corporation (BRDCY)
Headquartered in Tokyo, Japan, BRDCY is the global leader in manufacturing and selling tires and rubber products. The company provides various products, including tires for various vehicles, automotive parts, chemical products, sporting goods, and financial services.
On November 21, BRDCY received the Sustainability Award from Airbus at the Global Supplier Conference in France, acknowledging its commitment to sustainability. The recognition reflects BRDCY's efforts to reduce CO2 emissions, enhance resource productivity, and contribute to a circular economy in the aviation sector.
The company aligns with its "Bridgestone E8 Commitment" and collaborates with Airbus to support a sustainable aviation value chain.
BRDCY’s trailing-12-month gross profit margin of 38.48% is 8.2% higher than the industry average of 35.56%. Its 12.08% trailing-12-month EBIT margin is 61% higher than the 7.5% industry average.
For the nine months ended September 30, 2023, BRDCY’s revenue grew 7.4% year-over-year to YEN3.20 trillion ($21.41 billion). The company achieved adjusted operating profit and EPS of YEN362.26 billion ($2.43 billion) and YEN389.20, up 5.9% and 43% from the same period the prior year, respectively. Also, its cash and cash equivalents at the end of the period increased 22.9% year-over-year to YEN644.76 billion ($4.32 billion).
BRDCY’s revenue is expected to grow 289.7% year-over-year to $28.57 billion for the fiscal year ending December 2023. Its EPS is expected to be $1.92 for the same period. The company surpassed the revenue estimates in three of the trailing four quarters.
Shares of BRDCY increased 4.2% over the past year and 12.8% year-to-date to close the last trading session at $19.89.
BRDCY’s POWR Ratings reflect this positive outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
BRDCY has an A grade for Stability and Quality. Within the A-rated Auto Parts industry, it is ranked #21 among 61 stocks.
Click here for BRDCY’s additional Growth, Value, Momentum, and Sentiment ratings.
Gates Industrial Corporation plc (GTES)
GTES is a global power transmission and fluid power solutions manufacturer, offering products like belts and fluid power components for the construction, agriculture, and automotive industries. Serving replacement and OEM markets, the company operates under the Gates brand.
GTES’ trailing-12-month gross profit margin of 37.05% is 21.5% higher than the industry average of 30.49%. Its 12.23% trailing-12-month EBIT margin is 26.3% higher than the 9.68% industry average.
For the third quarter, which ended September 30, 2023, GTES generated net sales of $872.90 million, up 1.4% from the year-ago quarter. The company's adjusted EBITDA and net income increased 6.6% and 5.8% year-over-year to $189.40 million and $94.60 million, respectively. Moreover, its EPS grew 61.1% from the year-ago quarter to $0.29.
Analysts expect GTES’ revenue and EPS to grow marginally and 10% year-over-year to $3.58 billion and $1.25, respectively, for the fiscal year ending December 2023. The company surpassed the EPS estimates in three of the trailing four quarters.
The stock has soared 6.4% year-to-date and 9.3% over the past month to close the last trading session at $12.14.
GTES’ strong 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.
GTES has a B grade for Value, Stability, Sentiment, and Quality. Within the Auto Parts industry, it is ranked #9.
To see GTES’ additional POWR Ratings for Growth and Momentum, click here.
What To Do Next?
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VWAGY shares were unchanged in premarket trading Friday. Year-to-date, VWAGY has declined -15.52%, versus a 20.40% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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