The automotive industry is well-poised for significant profitability this year and beyond, driven by strong consumer demand and improved supply, rapid transition to EVs worldwide, and growing technology integration in the auto manufacturing processes.
Given the industry’s tailwinds, it could be wise to invest in fundamentally sound auto stocks Bridgestone Corporation (BRDCY), LKQ Corporation (LKQ), and Modine Manufacturing Company (MOD) for solid returns.
According to an estimate from research firm Wards Intelligence, for the first half of 2023, U.S. new-vehicle sales grew nearly 13% year-over-year to 7.7 million, fueled by pent-up demand from almost two years of short supplies.
Moreover, the surge in demand for Electric Vehicles (EVs) has led to a paradigm shift in the automotive industry. In 2022, electric car markets saw exponential growth as sales exceeded 10 million. The share of electric cars in total car sales has more than tripled in three years, from around 4% in 2020 to 14% in 2022.
EV sales are projected to continue its momentum through this year. Nearly 2.3 million electric cars were sold during the first quarter, more than 25% in the same period of 2022. By the end of 2023, around 14 million electric car sales are expected, representing a 35% year-over-year increase, with new purchases accelerating in the second half of this year.
Furthermore, the growing integration of digital technologies like IoT, AI, and blockchain is revolutionizing manufacturing processes in the automobile industry. For instance, predictive maintenance using IoT sensors reduces downtime, while AI-driven analytics optimize production efficiency.
As per a report by Market Research Future, the auto parts market is expected to reach $755 billion by 2026, growing at a CAGR of 7.5%. The growing interest of auto owners in improving their vehicle’s performance in terms of exhaust sound, speed, and appearance parameters is a primary driver of the market.
Also, the digitization of auto parts delivery sales and services should drive the market’s growth.
Given the industry’s promising growth prospects, quality auto stocks BRDCY, LKQ, and MOD could be solid additions to your portfolio.
Let’s take a closer look at the fundamentals of these stocks:
Bridgestone Corporation (BRDCY)
BRDCY, headquartered in Tokyo, Japan, is a global leader in tire and rubber manufacturing. The company provides advanced solutions for vehicles, industrial applications, and mobility, with a commitment to sustainability and driving excellence on roads worldwide.
On June 8, BRDCY announced the commencement of tire-derived oil and recovered carbon black production through the pyrolysis of used tires at their BRDCY Innovation Park in Kodaira City, Tokyo.
This initiative focuses on promoting chemical recycling technologies that enable precise pyrolysis of discarded tires and innovating chemical recycling technologies to produce chemical products such as butadiene, a raw synthetic rubber material. Such developments might give BRDCY a competitive advantage in the technical sphere.
On June 1, BRDCY launched the premium VX-R TRACTOR tire range, which stands out for its wide-tread traction. The wide tread width offers multiple benefits, including enhanced traction through a broader contact area, extended wear life due to a wear-resistant compound, and improved driver comfort with a smoother ride in sync with the farmers’ expectations for durability and efficiency.
Such technical enhancements should drive the demand for the company’s products, driving its revenue stream and growth.
BRDCY’s revenues increased 11.4% year-over-year to ¥2.10 trillion ($14.66 billion) for the fiscal first half that ended June 30, 2023. The company’s gross profit rose 10.7% from the year-ago value to ¥809.45 billion ($5.65 billion), while its adjusted operating profit grew 15.3% from the prior-year quarter to ¥238.30 billion ($1.66 billion).
Furthermore, BRDCY’s profit attributable to owners of parent increased 55.9% year-over-year to ¥183.30 billion ($1.28 billion), and its earnings per share from continuing operations were ¥267.47, up 59.5% year-over-year.
The consensus revenue estimate of $30.41 billion for the fiscal year (ending December 2023) represents a 314.7% increase year-over-year. The consensus EPS estimate of $2.07 for the current year indicates a 38.7% improvement year-over-year. Also, BRDCY surpassed the consensus revenue estimates in all four trailing quarters.
Over the past three months, the stock has gained 8.9% and 12.3% year-to-date to close the last trading session at $19.90.
BRDCY’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of A, translating 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.
BRDCY has an A grade for Stability and Quality and B grade for Growth. Out of the 60 stocks in the A-rated Auto Parts industry, it is ranked #4.
To see the other ratings of BRDCY for Momentum, Value, and Sentiment, click here.
LKQ Corporation (LKQ)
LKQ provides automotive replacement parts and related products. It operates through four segments: Wholesale-North America; Europe; Specialty; and Self Service. The company's offerings include bumper covers, body panels, lights, glass, salvage parts like engines and transmissions, brake components, steering parts, filters, and recyclable materials.
On Aug 1, LKQ announced that it had finalized the acquisition deal where Uni-Select was purchased by 9485-4692 Québec Inc., a wholly-owned LKQ subsidiary, through a plan of arrangement under the Business Corporations Act (Québec).
Uni-Select is a leader in the distribution of automotive refinish and industrial coatings and related products in North America and a leader in the automotive aftermarket parts business in Canada and the United Kingdom. The acquisition of Uni-Select might significantly drive LKQ’s profitability and growth.
In the second quarter that ended June 30, 2023, LKQ’s revenue increased 3.2% year-over-year to $3.40 billion. Its gross margin rose 3.5% from the year-ago value to $1.41 billion. During the quarter, the company’s cash flow from operations and free cash flow were $480 million and $414 million, respectively,
Analysts expect LKQ’s EPS for the fiscal year (ending December 2023) to increase 3.6% year-over-year to $3.99. Likewise, the consensus revenue estimate of $13.38 billion for the ongoing year indicates a 4.6% rise year-over-year. In addition, the company topped the consensus EPS estimates in three of the trailing four quarters.
LKQ’s stock has declined 1% year-to-date to close the last trading session at $53.32.
It’s no surprise that LKQ has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
LKQ has a B grade for Growth, Stability, and Quality. It is ranked #18 out of 60 stocks in the same industry.
In addition to the POWR Ratings we’ve stated above, we also have LKQ’s ratings for Value, Sentiment, and Momentum. Get all LKQ ratings here.
Modine Manufacturing Company (MOD)
MOD offers engineered heat transfer systems and components with operations in North America, Europe, and Asia. The company operates in Climate Solutions and Performance Technologies segments. It serves heating, ventilation, and cooling OEMs; construction architects and contractors; automobile, truck, and specialty vehicle OEMs; and industrial equipment OEMs.
On July 25, MOD was chosen as the thermal management supplier for a new Komatsu excavator. The 20-ton electric excavator, renowned for its performance and reliability, will be fitted with Modine's L-CON BTMS, a rugged system with smart controls that integrates cutting-edge heat exchanger tech, ensuring optimal battery performance in challenging conditions.
In demanding and harsh conditions, MOD’s EVantage Battery Thermal Management System guarantees optimal battery performance and durability for the 20-ton electric Komatsu excavators. This strategic deal is expected to boost the company’s revenue stream.
On July 6, MOD announced that it had acquired Napps Technology which specializes in producing air- and water-cooled chillers, heat pumps, and condensing units for the K-12 school sector and comparable applications.
This strategic move aligns with MOD’s expansion goals since this acquisition will provide it access to modular heat pump chillers and condensing units that complement the company’s existing indoor air quality line focused on the North American K-12 school market.
For the first quarter that ended June 30, 2023, MOD’s net sales increased 15.1% year-over-year to $622.40 million. Its gross profit grew 53% from the year-ago value to $127.90 million. Its operating income increased 160% year-over-year to $66.50 million. The company’s adjusted EBITDA rose 91% year-over-year to $80.40 million.
Also, net earnings attributable to Modine increased 213.3% year-over-year to $44.80 million, and its adjusted EPS was $0.85, compared to $0.32 in the previous year’s quarter.
Analysts expect MOD’s revenue for the fiscal year (ending March 2024) to increase 9.2% year-over-year to $2.51 billion. The company’s EPS for the ongoing year is expected to grow 48.08% from the prior year to $2.89. Moreover, the company topped the consensus EPS estimates in each of the trailing four quarters, which is impressive.
Shares of MOD have increased 124.9% over the past three months to close the last trading session at $45.83.
MOD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, translating to a Strong Buy in our proprietary rating system.
MOD has a B grade for Momentum, Growth, Value, and Sentiment. It is ranked #13 among 60 stocks in the Auto Parts industry.
Click here to see the other ratings of MOD for Quality and Stability.
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BRDCY shares were trading at $19.28 per share on Wednesday afternoon, down $0.62 (-3.12%). Year-to-date, BRDCY has gained 9.36%, versus a 17.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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