The auto industry is currently experiencing tailwinds arising out of strong customer demand, rapid EV adoption, government incentives, and the easing of the global supply chain. The industry is expected to benefit further from the anticipated interest rate cuts by central banks this year.
Amid this backdrop, it could be wise to buy fundamentally strong auto stocks Volkswagen AG (VWAGY), Bayerische Motoren Werke Aktiengesellschaft (BMWYY), and Suzuki Motor Corporation (SZKMY), which are Wall Street favorites.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the auto industry.
The auto industry witnessed a strong rebound last year despite high inflation and rising interest rates. To meet the strong demand for automobiles last year, manufacturers ramped up their production. Also, the industry benefited from the easing of the supply chain.
According to S&P Global Mobility, 2023, global light vehicle sales are projected to reach nearly 86 million units, representing an increase of 8.9% over the prior year. Despite rising vehicle prices and stickier inflation expected this year, the auto industry will likely benefit from manufacturer promotions, the adoption of electric vehicles, rising disposable incomes, technological advancements, etc.
The growing popularity of electric vehicles positions the auto industry for expansion. Fueled by environmental concerns, expanding public charging infrastructure, price reductions, and government incentives, electric cars are experiencing strong demand.
According to BloombergNEF's electric vehicle outlook, there will be 730 million passenger EVs on the road in 2040, reaching 44% of global passenger vehicle sales by 2030. Meanwhile, U.S. new vehicle sales are expected to rise by 1% to 15.7 million units this year, facing potential demand pressures from high interest rates despite improved vehicle supply.
Additionally, the share of electric vehicles in total new vehicle sales this year is projected to rise to 8%, up from 6.9% recorded through November 2023.
Furthermore, the auto industry is expected to benefit from interest rate cuts this year as borrowing will become cheaper. Global automotive sales are projected to grow from 91 million units last year to 96 million units this year, growing between 5% and 7%.
Considering these conducive trends, let’s analyze the fundamentals of the three Auto & Vehicle Manufacturers picks, beginning with the third choice.
Stock #3: Volkswagen AG (VWAGY)
Based in Wolfsburg, Germany, VWAGY manufactures and sells automobiles in Germany, Europe, North America, South America, the Asia-Pacific, and internationally. The company operates through four segments: Passenger Cars and Light Commercial Vehicles, Commercial Vehicles, Power Engineering, and Financial Services.
In terms of the trailing-12-month net income margin, VWAGY’s 4.66% is 2.2% higher than the 4.56% industry average. Likewise, its 11.27% trailing-12-month levered FCF margin is 106.9% higher than the 5.45% industry average. Additionally, its 4.67% trailing-12-month Capex/Sales is 52.2% higher than the 3.07% industry average.
For the third quarter that ended September 30, 2023, VWAGY’s sales revenue increased 11.6% year-over-year to €78.85 billion ($85.38 billion). Its operating result rose 14.9% over the prior-year quarter to €4.89 billion ($5.30 billion). Additionally, its earnings after tax came in at €4.35 billion ($4.71 billion), up 103.6% year-over-year.
Street expects VWAGY’s revenue for the quarter ended December 31, 2023, to increase 7.5% year-over-year to $88.02 billion. Its EPS for fiscal 2023 is expected to increase 72.1% year-over-year to $5.48. Over the past three months, the stock has gained 24.4% to close the last trading session at $13.89.
VWAGY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #10 out of 52 stocks in the Auto & Vehicle Manufacturers industry. It has an A grade for Value and a B for Growth and Stability. To see VWAGY’s Momentum, Sentiment, and Quality ratings, click here.
Stock #2: Bayerische Motoren Werke Aktiengesellschaft (BMWYY)
Headquartered in Munich, Germany, BMWYY develops, manufactures, and sells automobiles, motorcycles, and spare parts and accessories worldwide. It operates through Automotive, Motorcycle, and Financial Services segments.
In terms of the trailing-12-month EBIT margin, BMWYY’s 11.51% is 50.9% higher than the 7.63% industry average. Likewise, its 7.29% trailing-12-month net income margin is 59.9% higher than the 4.56% industry average. Also, its 5.58% trailing-12-month levered FCF margin is 2.5% higher than the 5.45% industry average.
For nine months ended September 30, 2023, BMWYY’s revenues increased 9.2% year-over-year to €112.53 billion ($121.85 billion). The company’s gross profit rose 23% year-over-year to €21.83 billion ($23.64 billion). Also, its net profit attributable to shareholders of BMWYY and EPS of common stock came in at €8.90 billion ($9.64 billion) and €13.90, respectively.
For the quarter ended December 31, 2023, BMWYY’s EPS is expected to increase 27% year-over-year to $1.53. Its revenue for the same quarter is expected to increase 5% year-over-year to $43.90 billion. Over the past three months, the stock has gained 11.1% to close the last trading session at $34.52.
BMWYY’s solid prospects are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Stability and a B for Value and Quality. Within the same industry, it is ranked #5. Beyond the grades mentioned, we have also rated BMWYY for Growth, Momentum, and Sentiment. Get all ratings here.
Stock #1: Suzuki Motor Corporation (SZKMY)
Headquartered in Tokyo, Japan, SZKMY engages in the manufacturing and marketing of automobiles, motorcycles, and marine products in Japan, the rest of Asia, Europe, North America, and internationally.
In terms of the trailing-12-month net income margin, SZKMY’s 4.72% is 3.5% higher than the 4.56% industry average. Likewise, its 12.17% trailing-12-month EBITDA margin is 11.7% higher than the industry average of 10.90%. Moreover, the stock’s 1.04x trailing-12-month asset turnover ratio is 5.4% higher than the industry average of 0.99x.
SZKMY’s net sales for the six months that ended September 30, 2023, increased 15.6% year-over-year to ¥2.56 trillion ($17.32 billion). The company’s gross profit rose 21.2% year-over-year to ¥665.83 billion ($4.50 billion). Moreover, its profit attributable to owners of parent and profit per share increased 12.4% and 12.6% over the prior-year quarter to ¥129.35 billion ($874.91 million) and ¥237.02, respectively.
For the quarter ended December 31, 2023, SZKMY’s revenue is expected to increase 1% year-over-year to $9.21 billion. Over the past nine months, the stock has gained 26.6% to close the last trading session at $175.85.
SZKMY’s POWR Ratings reflect its positive outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
Within the Auto & Vehicle Manufacturers industry, it is ranked #4. It has a B grade for Growth, Value, Stability, and Quality. Click here to see SZKMY’s Momentum and Sentiment ratings.
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VWAGY shares were trading at $13.84 per share on Tuesday morning, down $0.05 (-0.36%). Year-to-date, VWAGY has gained 6.63%, versus a 3.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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