Despite macroeconomic challenges, the auto industry is set for solid growth due to strong customer demand, rapid EV adoption, government incentives, and enhanced supply chains. Amid this backdrop, it could be wise to buy fundamentally strong auto stocks Bayerische Motoren Werke Aktiengesellschaft (BMWYY), Hyundai Motor Company (HYMTF), and Subaru Corp. ADR (FUJHY).
Before delving deeper into their fundamentals, let’s discuss what’s happening in the auto industry.
Despite high inflation, supply chain challenges, and high borrowing rates, the auto industry has performed well this year. U.S. new vehicle sales in November are estimated to increase 10.2% year-over-year to 1,236,000 units. J.D. Power’s data and analytics division’s president, Thomas King, said, “Sales growth is being enabled by improving vehicle availability.”
Additionally, based on the revival of Chinese demand, J.D. Power and GlobalData raised the annual forecast for global light-vehicle sales to 89.3 million units, rising 10% over last year. Also, global light-vehicle sales in 2024 are forecasted to grow 3% year-over-year to 92.3 million units next year.
The auto industry is benefiting from the rising popularity of electric vehicles. Fueled by environmental concerns, expansion of public charging infrastructure, price cuts, and government incentives, electric cars are witnessing solid demand. According to BloombergNEF's electric vehicle outlook, EVs will reach 44% of global passenger vehicle sales by 2030 and 75% by 2040.
The global automotive market is projected to reach $28.70 billion by 2030, growing at a CAGR of 4.5%.
Considering these conducive trends, let’s analyze the fundamentals of the three Auto & Vehicle Manufacturers picks, beginning with the third choice.
Stock #3: 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 54.2% higher than the 7.47% industry average. Likewise, its 7.29% trailing-12-month net income margin is 61.2% higher than the 4.52% industry average. Also, its 5.58% trailing-12-month levered FCF margin is 7.8% higher than the 5.18% industry average.
For nine months ended September 30, 2023, BMWYY’s revenues increased 9.2% year-over-year to €112.53 billion ($121.36 billion). The company’s gross profit rose 23% year-over-year to €21.83 billion ($23.54 billion). Also, its net profit attributable to shareholders of BMWYY and EPS of common stock came in at €8.90 billion ($9.60 billion) and €13.90, respectively.
For the quarter ending December 31, 2023, BMWYY’s EPS is expected to increase 32.2% year-over-year to $1.59. Its revenue for the same quarter is expected to increase 2.4% year-over-year to $42.80 billion. The stock has gained 20.4% year-to-date to close the last trading session at $35.71.
BMWYY’s solid prospects 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 has an A grade for Stability and a B for Value and Quality. Within the B-rated Auto & Vehicle Manufacturers industry, it is ranked #13 out of 49 stocks. Beyond the grades mentioned, we have also rated BMWYY for Growth, Momentum, and Sentiment. Get all ratings here.
Stock #2: Hyundai Motor Company (HYMTF)
Headquartered in Seoul, South Korea, HYMTF manufactures and distributes motor vehicles and parts worldwide. It operates through Vehicle, Finance, and Others segments. The company offers cars under the Azera, Sonata, Veloster, The new i30, Elantra, Accent, i20, and i10 names and SUVs under The new Palisade, Santa Fe, Tucson, Creta, Kona, and Venue names.
On November 23, 2023, HYMTF signed a direct power purchase agreement (PPA) with Hyundai Engineering and Construction. The agreement commits to supplying 64 megawatts of solar power to the Ulsan Plant by 2025, aligning with HYMTF’s global strategy to achieve Renewable Energy 100 (RE100) by 2045.
This initiative aims to source 100 percent of HYMTF’s electricity from renewable energy. As part of the RE100 strategy, HYMTF will invest over KRW 200 billion to build solar self-generation infrastructure at domestic sites by 2025 and aims to achieve Global RE30 by 2025.
On November 13, 2023, HYMTF announced the opening of a new $1.53 billion electric vehicle (EV) plant in Ulsan, Korea. With an annual capacity of 200,000 EVs, construction will begin in late 2023, and mass production will start in early 2026. HYMTF aims to advance electrification, focusing on human-centered values and innovative manufacturing. The facility will serve as a hub for HYMTF’s electric mobility production.
In terms of the trailing-12-month net income margin, HYMTF’s 7.17% is 58.6% higher than the 4.52% industry average. Likewise, its 11.85% trailing-12-month Return on Common Equity is 3.9% higher than the 11.40% industry average. Additionally, its 3.66% trailing-12-month Capex/Sales is 20.3% higher than the 3.04% industry average.
HYMTF’s revenue for the fiscal third quarter that ended September 30, 2023, increased 8.7% year-over-year to KRW41 trillion ($31.18 billion). Its gross profit rose 15% over the prior-year quarter to KRW8.46 trillion ($6.43 billion).
The company’s operating income came in at KRW3.82 trillion ($2.90 billion), representing an increase of 146.3% year-over-year. In addition, its net income increased 134% year-over-year to KRW3.30 trillion ($2.51 billion).
Street expects HYMTF’s revenue for the quarter ending December 31, 2023, to increase 1.7% year-over-year to $31.79 billion. The stock has gained 35.3% year-to-date to close the last trading session at $40.26.
HYMTF’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.
It is ranked #12 in the same industry. It has an A grade for Growth and Stability and a B for Value. To see HYMTF’s Momentum, Sentiment, and Quality ratings, click here.
Stock #1: Subaru Corp. ADR (FUJHY)
Headquartered in Tokyo, Japan, FUJHY manufactures and sells automobiles and aerospace products in Japan, the rest of Asia, North America, Europe, and internationally. It operates through three segments: Automotive, Aerospace, and Others.
In terms of the trailing-12-month net income margin, FUJHY’s 6.46% is 42.8% higher than the 4.52% industry average. Likewise, its 5.64% trailing-12-month levered FCF margin is 9% higher than the industry average of 5.18%. Moreover, the stock’s 1.02x trailing-12-month asset turnover ratio is 2.8% higher than the industry average of 0.99x.
FUJHY’s revenues for the six months that ended September 30, 2023, increased 26.4% year-over-year to ¥2.21 trillion ($15.01 billion). Its operating profit increased 68.3% year-over-year to ¥185.84 billion ($1.26 billion). In addition, its profit for the period attributable to owners of parent and EPS increased 93.9% and 95.6% year-over-year to ¥150.95 billion ($1.03 billion) and ¥198.58, respectively.
For the quarter ending December 31, 2023, FUJHY’s revenue is expected to increase 2.5% year-over-year to $8.25 billion. Likewise, its EPS for the fiscal 2024 is expected to increase 60.4% year-over-year to $1.56. The stock has gained 20.4% year-to-date to close the last trading session at $9.10.
FUJHY’s POWR Ratings reflect its positive outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system.
Within the Auto & Vehicle Manufacturers industry, it is ranked #11. It has an A grade for Value and a B for Stability and Quality. Click here to see FUJHY’s Growth, Momentum, and Sentiment ratings.
What To Do Next?
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BMWYY shares were trading at $35.57 per share on Thursday afternoon, down $0.14 (-0.39%). Year-to-date, BMWYY has gained 27.00%, versus a 21.14% 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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