Forget Ford Motor, Buy These 4 Auto Manufacturers Instead

The global automotive industry is expected to maintain steady growth over the long term, owing to surging consumer spending and high demand for electric vehicles (EVs). With supply chain constraints and the semiconductor shortage predicted to ease beginning next year, Market Research Future predicts the automotive industry will grow at a 4.5% CAGR  between 2021 - 2028.

However, Ford Motor Company (F) reported unimpressive financials for the fiscal third quarter (ended September 30, 2021). Its automotive revenue decreased 4.3% year-over-year to $33.21 billion. Its total revenues also fell 4.8% year-over-year to $35.68 billion. And F’s 10.09% trailing-12-month gross profit margin ratio is 71.9% lower than the 35.91% industry average. Its 6.66% trailing-12-month EBITDA margin is 47.9% lower than the 12.80% industry average. The stock has declined 1.7% in price over the past month to close yesterday’s trading session at $20.14. Moreover, Daiwa Securities recently downgraded the stock to ‘underperform’ from ‘neutral.’ And in terms of forward EV/S ratio, the stock’s 1.51x is higher than the 1.37x industry average, and its 14.74x forward EV/EBITDA is 48.2% higher than the 9.95x industry average. So, we think it may not be a wise bet now.

Therefore, investors looking to benefit from the industry’s growth could do better by betting instead on quality auto manufacturer stocks Volkswagen AG (VWAGY), Daimler AG (DDAIF), AB Volvo (publ) (VLVLY), and Honda Motor Co., Ltd. (HMC).

Click here to check out our Automotive Industry Report 

Volkswagen AG (VWAGY)

Based in Wolfsburg, Germany, VWAGY manufactures and  sells automobiles, primarily in Europe, North America, South America & the Asia-Pacific. It has four segments: Passenger Cars & Light Commercial Vehicles; Commercial Vehicles; Power Engineering; and Financial Services.

On December 8, Thomas Schmall, a member of the board of management of Volkswagen Group for Technology, and  CEO of Volkswagen Group Components, said: “Volkswagen is implementing its battery strategy very consistently and at a high pace. Volkswagen’s unified cell must be at the forefront of performance, costs, and sustainability right from the start. We are one step closer to reaching this goal with our new partners. Together, we will focus on key parts of the battery value chain and develop cutting-edge technologies.”

VWAGY’s sales revenue came in at €186.6 billion ($211.55 billion) for the third quarter, ended September 30, 2021, up 20% year-over-year. Also, its commercial vehicles’ total assets came in at €46.84 billion ($53.10 billion) for the period ended September 30, 2021, compared to €36.03 billion ($40.85 billion) for the period ended December 31, 2020. Its power engineering total assets were €4.66 billion ($5.28 billion), versus  €4.65 billion ($5.27 billion) for the same period.

Analysts expect VWAGY’s revenue and EPS to increase 11.3% and 66.8%, respectively, year-over-year to $282.93 billion and $3.17in its fiscal 2021. Over the past year, the stock has gained 46.4% to close yesterday’s trading session at $29.35.

VWAGY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.

VWAGY has a B grade for Value and Stability. In the Auto & Vehicle Manufacturers industry, it is ranked #7  of 67 stocks. Click here to see the additional POWR Ratings for Momentum, Growth, Sentiment, and Quality for VWAGY.

Daimler AG (DDAIF)

Headquartered in Stuttgart, Germany, DDAIF develops and manufactures passenger cars, trucks, vans, and buses in Germany and internationally. It operates through Mercedes-Benz Cars & Vans; Daimler Trucks and Buses; and Daimler Mobility segments.

On December 17, Mercedes-Benz agreed with the European Association of Mercedes-Benz Dealers on crucial points to introduce the agency model in Europe. Britta Seeger, a member of the board of management of DDAIF and Mercedes-Benz AG, who is responsible for sales, said, “We have ambitious goals we want to achieve together with our sales partners: by the end of 2023, more than 50% of new Mercedes-Benz vehicles available in Europe should be sold under the agency model.”

DDAIF’s revenue came in at €31.65 billion ($35.84 billion) for the fiscal third quarter of 2021, compared to €31.62 billion ($35.81 billion) in the previous period. Its net profit came in at €2.57 billion ($2.91 billion), up 19.2% year-over-year. Furthermore, its EPS came in at €2.31, up 20.9% year-over-year.

For its fiscal year 2021, DDAIF’s revenue and EPS are expected to grow 8.1% and 234.3%, respectively, year-over-year to $200.90 billion and $13.64.In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 15.3% in price to close yesterday’s trading session at $79.17.

DDAIF has an overall A rating, which equates to a Strong Buy in our proprietary rating system.

In addition, it has an A grade for Value and a B grade for Stability, Sentiment, and Quality. DDAIF is ranked #2 in the Auto & Vehicle Manufacturers  industry. Click here to see the additional POWR Ratings for DDAIF (Momentum and Growth).

AB Volvo (publ) (VLVLY)

Headquartered in Gothenburg, Sweden, VLVLY and its subsidiaries manufacture and sell trucks, buses, construction equipment, and marine and industrial engines in Europe, North America, South America, Asia, Africa, and Oceania.

On December 10,  Volvo Cars and Northvolt decided to open a joint research and development center in Gothenburg for a SEK30 billion investment in battery development and manufacturing. Håkan Samuelsson, chief executive for Volvo Cars, said, “Our partnership with Northvolt secures the supply of high-quality, sustainably-produced batteries for the next generation of pure electric Volvos.”

For the third quarter, ended September 30, 2021, VLVLY’s gross income increased 6.9% year-over-year to SEK 13.74 billion ($1.51 billion). The company’s total non-current assets came in at SEK 129.71 billion ($14.22 billion) for the period ended September 30, 2021, versus SEK 123.48 billion ($13.54 billion) for the period ended December 31, 2020. Its total non-current liabilities were SEK 61.46 billion ($6.74 billion), compared to SEK 65.54 billion ($7.19 billion), for the same period.

VLVLY’s revenue is expected to be $43.81 billion in its fiscal 2022, representing a 9.9% year-over-year rise. Over the past three months, the stock has gained 2.3% in price to close yesterday’s session at $22.33.

It is no surprise that VLVLY has an overall B grade, which equates to a Buy in our POWR Ratings system. Also, it has a B grade for Value, Stability, and Quality in our POWR Ratings system.

VLVLY is ranked #11 in the Auto & Vehicle Manufacturers industry. Click here to see the additional POWR Ratings for VLVLY (Momentum, Growth, and Sentiment).

Honda Motor Co., Ltd. (HMC)

Japan-based HMC develops, manufactures, and distributes motorcycles, automobiles, power products, and others domestically and internationally. It operates through four segments: Motorcycle Business; Automobile Business; Financial Services Business; Life creation and Other Businesses.

On October 26, 2021, HMC announced its return to SEMA with the debut of its 2022 Civic Si Race cars with rugged overlanding trucks. Fully equipped for overlanding, the Passport TrailSport Rugged Roads Project 2.0, and the Ridgeline HPD Trail Tour Project highlight the company’s consistent product innovation.

For its fiscal first half, ended September 30, 2021, HMC’s sales increased 21% year-over-year to  ¥6.99 trillion ($61.33 billion). The company’s operating profit increased 161.3% year-over-year to ¥442.10 billion ($3.88 billion). And its profit came in at ¥389.20 billion ($3.42 billion), up 143.25% year-over-year.

HMC’s revenue is expected to be  $129.49 billion for its  fiscal year ending March 2022, representing a 357.77% year-over-year rise. In addition, the company’s EPS is expected to increase 29.43% year-over-year to $4.22 for its fiscal year ending March 2023. Also, it surpassed the consensus EPS estimates in three of the trailing four quarters. The stock is trading 4.7% above its 52-week low of $26.33, which it hit on January 29, 2021, to close yesterday’s trading session at $27.57.

It is no surprise that HMC has an overall B rating, which equates to a Buy in our POWR Rating system. The stock has an A grade for Value and a B grade for Stability.

HMC is ranked #6 in the Auto & Vehicle Manufacturers industry. Click here to see the additional POWR Ratings for HMC (Quality, Momentum, Growth, and Sentiment).

Click here to check out our Automotive Industry Report 

VWAGY shares were trading at $29.95 per share on Thursday afternoon, up $0.60 (+2.03%). Year-to-date, VWAGY has gained 45.24%, versus a 27.66% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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