The automobile manufacturing industry was one of the hardest hit industries amid the COVID-19 pandemic due to lower car purchases and the underutilization of production plants. However, the sector’s stock market performance was not completely horrible in 2020 thanks to the electric vehicle (EV) boom. The industry’s momentum is likely to continue because the global economy is expected to see a steady recovery this year and consumer spending is expected to return to pre-pandemic levels.

There is a growing perception that the widespread distribution of COVID-19 vaccines could lead to an auto buying boom this year, with the trend anticipated to surge exponentially over the decade. Statista forecasts that global automotive industry revenue will be just under $9 trillion by 2030, with new vehicle sales accounting for 38% of that value. However, we think major legacy automakers like Tesla, Inc. (TSLA) are clearly  overpriced.

Hence, we think it  could be a good idea to add fundamentally sound automakers like Honda Motor Company, Ltd. (HMC) and Ford Motor Company (F) to your portfolio because  they are already witnessing a strong rebound in sales from pandemic-driven lows.

Honda Motor Company, Ltd. (HMC)

HMC is a Japan-based auto manufacturer that develops, manufactures, and distributes motorcycles, automobiles, power products, and other auto products. The company is recognized internationally for its wide variety of products, ranging from small general-purpose engines to specialty sports cars, which incorporate its efficient internal combustion engine technology. HMC It operates through four segments – Motorcycle Business, Automobile Business, Financial Services Business, and Life creation and Other Businesses.

HMC is attracting the limelight due to  its forthcoming 2022 Honda Civic, which features a design similar to higher-end German cars. This month, Honda announced a collaboration with Cruise and General Motors (GM) on autonomous vehicles to create new value for mobility and to provide assistance with the future testing of self-driving cars. Note that GM is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.

In addition, , Aquarius Engines, an Israel-based micro engine manufacturing major, has signed a partnership deal with HMC-affiliate Musashi Seimitsu to co-develop electricity generators for the automotive and telecommunications industry.

The consolidated sales revenue for HMC’s fiscal second quarter ended September 30, 2020 decreased by 2.1% versus the same period last year to JPY 3,651.3 billion. This was mainly due to lower sales revenue in its automobile business. Most of its automobile revenue is generated in the U.S., while most of its  motorcycle revenue is generated in various Asian markets. Nevertheless, its  operating profit increased by 28.5% from the same period last year due to controlled SG&A expenses. Moreover, its  EPS came in at JPY 139.53, rising 25% year-over-year.

The company launched its first-ever all-electric compact car, the “Honda e”, in Europe and Japan last year. In addition , HMC has already announced its  exit from Formula 1 racing  at the end of 2021 to focus on its zero-emissions technology. In fact, the company plans to roll out six new EVs in Europe by 2022.  HMC is planning a shift to electric power in its European cars before 2023 as part of wide-ranging plans to reduce its carbon footprint. In line with its progress, analysts expect HMC’s EPS to grow 19.2% annually for the next five years.

HMC’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system. HMC has a grade of A for Value, and a B for both Stability and Quality. In the 50-stock, B-rated Auto & Vehicle Manufacturers industry, it is ranked #2. In total, we rate HMC on eight different components. Beyond what we stated above, we have also given HMC grades for Growth, Momentum, and Sentiment. Get all the HMC ratings here.

Ford Motor Company (F)

F is a Michigan-based global auto company that designs, manufactures, markets and services a full line of Ford cars, trucks, SUVs, electrified vehicles and Lincoln luxury vehicles, and provides financial services through Ford Motor Credit Company. The company operates through three segments – Automotive, Mobility, and Ford Credit.

F and Alphabet, Inc. (GOOGL) announced a six-year strategic partnership yesterday, in which they will collaborate on new technologies and install Google’s Android operating system as the primary system for the infotainment screens in millions of Ford and Lincoln cars and trucks beginning  in 2023. In addition, Google will  provide cloud data storage, artificial intelligence and analytics capabilities to better interpret the data it collects from vehicles and its own operations to improve upon  customer service, manufacturing, marketing and more.

F is scheduled to release its fourth-quarter and full-year 2020 financial results on February 4. The company delivered  approximately 4.3 million vehicles worldwide during the fourth quarter of 2020, which includes 542,749 vehicles delivered to the U.S.  In the third quarter of 2020, F’s total revenues were $37.5 billion, up 1% year-over-year, driven by high-demand and better operational execution. The company is benefiting from its franchise strength on the back of pickup trucks, SUVs, commercial vehicles and iconic PVs. The company reported an adjusted EPS of $0.65, rising 91% year-over-year.

In late 2021, the automaker will  begin selling an all-electric cargo van for less than  $45,000. The commercial market needs a zero-emission fleet, and F is positioning itself to ride that trend and is developing  “next-level software, services, and capability” with its 2022 E-Transit.

In November, Ford divulged that it is  building a $100 million plant in Missouri to manufacture  an all-electric van. The company has also said it plans to invest $11.5 billion in EVs through 2022. The company is geared up to produce a range of hot new products, which include the Mustang Mach-E, the F-160 pickup and the Bronco, which are likely to drive near-term earnings. F’s new F-150 is expected to have the biggest impact on F’s financials this year. Wall Street analysts further expect F’s current-year revenues and EPS to grow 22.4% and 10,700%, respectively.

It is no surprise that F has an overall rating of B, which equates to Buy in our POWR Ratings system. F has a grade of A for Value and B for both Growth and Sentiment. It is ranked #14 in the Auto & Vehicle Manufacturers industry.

In addition to the POWR Ratings grades I have just highlighted, you can see F’s ratings for Quality, Stability, and Momentum here.

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HMC shares were trading at $26.81 per share on Tuesday afternoon, up $0.30 (+1.13%). Year-to-date, HMC has declined -5.10%, versus a 2.35% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...

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