The auto manufacturing industry is experiencing a radical shift with an increased focus on electrification of vehicles. Moreover, despite high borrowing costs thanks to the 22-year high benchmark interest rates, rising auto sales reflect steady demand.
Therefore, investors looking to capitalize on the industry’s resilience could consider buying quality vehicle manufacturing stocks Volkswagen AG (VWAGY), Mercedes-Benz Group AG (MBGAF), and Honda Motor Co., Ltd. (HMC).
Despite high-interest rates, U.S. automakers reported increased new vehicle sales in the third quarter, driven by demand for the latest models and improved supplies. Also, September's new vehicle sales totaled 1.33 million units in the U.S.
Looking ahead, the global automotive market is expected to grow to $3.27 trillion by 2028, registering at a CAGR of 3%.
In recent years, a noticeable global shift towards EVs has been driven by rising fuel costs, increasing environmental awareness, and government incentives. There are currently 1.2 million electric vehicles in the United States, which is expected to be 18.7 million by 2030.
Furthermore, automakers are increasingly integrating digital technology into electric and self-driving vehicles, leading to innovative, zero-emission electric cars packed with digital features. The EV market is expected to reach approximately $1.72 trillion by 2032, growing at a CAGR of 23.1%.
Given the industry tailwinds, it's time to examine the fundamentals of the three stock picks from the Auto & Vehicle Manufacturers industry, starting with the third in line.
Stock #3: Volkswagen AG (VWAGY)
Headquartered 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 the first nine months of 2023, VWAGY continued its transformation with a significant increase in all-electric vehicle (BEV) deliveries. BEV deliveries globally grew by 45% to 531,500 vehicles, constituting 7.9% of total deliveries, up from 6.1% in the same period the prior year. The BEV share reached 9% in the third quarter compared to 6.8% in the year-ago period.
With a four-year average dividend yield of 6.26%, VWAGY pays an annual dividend of $0.94, which translates to a dividend yield of 7.40% on the current market price. The company has raised its dividend payouts at a CAGR of 20.9% over the past three years.
During the second quarter that ended June 30, 2023, VWAGY’s sales revenue increased 15.2% year-over-year to €80.06 billion ($84.52 billion). Its operating result improved 24.7% from the year-ago quarter to €5.60 billion ($5.91 billion), and its earnings after tax amounted to €3.79 billion ($4 billion).
Analysts expect VWAGY’s revenue and EPS for the fiscal year 2023 to increase 8.7% and 80.5% year-over-year to $325.88 billion and $5.74. Moreover, the company topped its revenue estimates in three of the trailing four quarters, which is remarkable.
The stock declined marginally intraday to close the last trading session at $12.76.
VWAGY’s POWR Ratings reflect this promising outlook. 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.
It has an A grade for Value and Stability and a B for Growth. The stock is ranked #8 among 51 stocks in the B-rated Auto & Vehicle Manufacturers industry.
In addition to the POWR Ratings highlighted above, one can access VWAGY’s Momentum, Sentiment, and Quality ratings here.
Stock #2: Mercedes-Benz Group AG (MBGAF)
Headquartered in Stuttgart, Germany, MBGAF operates as an automotive company in Germany and internationally. The company develops, manufactures, and sells premium and luxury cars and vans under the Mercedes-AMG, Mercedes-Benz, Mercedes-Maybach, and Mercedes-EQ brands, as well as related spare parts and accessories.
On September 18, MBGAF signed an agreement with Steel Dynamics, Inc. (STLD) to source over 50,000 tonnes of CO2-reduced steel annually for its Tuscaloosa, Alabama plant. STLD's steel is produced using an electric arc furnace (EAF) powered by 100% renewable electricity, significantly reducing emissions.
This partnership, which began in 2015, aims to lower emissions in the steel supply chain.
MBGAF pays an annual dividend of $5.72, which translates to a yield of 8.34% on the current market price. Its four-year average dividend yield is 5.06%. The company has raised its dividend payouts at a CAGR of 24.2% and 14.8% over the past three and five years.
MBGAF’s revenues for the second quarter ended June 30, 2023, increased 4.9% year-over-year to €38.24 billion ($40.37 billion). Its adjusted EBIT rose 5.5% year-over-year to €5.21 billion ($5.50 billion). Its profit attributable to shareholders of MBGAF increased 14.7% year-over-year to €3.56 billion ($3.76 billion). The company’s EPS rose 14.8% year-over-year to €3.34.
MBGAF’s revenue is expected to increase 3.5% year-over-year to $39.34 billion in the quarter that ended September 30, 2023. Its EPS is likely to be $3.59 in the same quarter. The company exceeded the consensus revenue estimates in three trailing four quarters.
Over the past year, the stock has gained 19.9% to close the last trading session at $67.50.
MBGAF’s robust outlook is reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Momentum, Stability, and Quality. It is ranked #4 in the same industry.
To see MBGAF’s rating for Sentiment, click here.
Stock #1: Honda Motor Co., Ltd. (HMC)
Headquartered in Tokyo, Japan, HMC is a multinational corporation that manufactures motorcycles, automobiles, and power products worldwide. It also provides financial services. The company operates through the Motorcycle Business; Automobile Business; Financial Services Business; and Power Product and Other segments.
On October 19, HMC, Cruise, and General Motors Co. (GM) agreed to create a joint venture aiming to launch a driverless ride-hail service in Japan by early 2026, pending regulatory approvals.
The service will utilize the Cruise Origin, a self-driving vehicle developed by the three companies, designed for ride-hailing with no driver's seat or steering wheel. Customers will use a dedicated app to hail and pay for rides. The service will start in central Tokyo with dozens of Cruise Origins and expand to 500 vehicles, targeting a broad customer base. The initiative aims to address mobility challenges in Japan and collaborate with local authorities and transportation providers.
On October 12, HMC and Mitsubishi Corporation signed a memorandum of understanding (MoU) to explore new business opportunities to capitalize on the electric vehicle (EV) market's growth and advance toward a decarbonized future. They intend to enhance their EV and EV battery businesses to provide greater value to customers.
HMC pays $0.87 annually, translating to a yield of 2.64% on the prevailing market price. It has a four-year average dividend yield of 3.32%.
HMC’s sales revenue increased by 20.8% year-over-year to ¥4.62 trillion ($30.85 billion) for the fiscal first quarter of 2024 (ended June 30). The company’s operating profit and profit for the period rose 77.5% and 134.1% year-over-year to ¥394.45 billion ($2.63 billion) and ¥382.95 billion ($2.56 billion).
EPS attributable to owners of the parent came in at ¥219.06, increasing 151.1% from the prior-year quarter.
Street expects HMC’s revenue and EPS to rise 386.6% and 39.3% from the previous year to $129.71 billion and $3.98 in the fiscal year ending March 2024.
HMC’s shares have soared 50.7% over the past year and 44.7% year-to-date, closing the last trading session at $33.07.
HMC’s strong fundamentals 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 Value and a B for Growth, Stability, Sentiment, and Quality. Within the Auto & Vehicle Manufacturers industry, it is ranked first.
Click here to view HMC’s rating for Momentum.
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MBGAF shares were trading at $67.15 per share on Thursday morning, down $0.35 (-0.51%). Year-to-date, MBGAF has gained 2.68%, versus a 13.28% 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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