This year, intensifying supply chain disruptions and a global semiconductor chip shortage caused production cuts and tight inventory for auto manufacturers. Furthermore, rising prices kept less affluent buyers away from new cars. As a result, U.S. light-vehicle sales declined 17% year-over-year last month.
While investors’ worries over the continuing chip shortage, production disruptions, and rising prices have driven manufacturing stocks to a correction of late, growing investments and interest in autonomous and electric vehicles make the industry’s prospects bright. The North American automotive market is expected to grow at a 6.6% CAGR to $970.23 billion by 2027.
Given this backdrop, we think it could be wise to buy the dip in quality auto manufacturing stocks Honda Motor Co., Ltd. (HMC), Nissan Motor Co., Ltd. (NSANY), Stellantis N.V. (STLA), and Mazda Motor Corporation (MZDAY).
Honda Motor Co., Ltd. (HMC)
Headquartered in Tokyo, Japan, HMC develops, manufactures, and distributes motorcycles, automobiles, and power products worldwide. The company also sells spare parts and provides after-sale services through retail dealers directly and independent distributors and licensees.
HMC’s Chinese subsidiary, Honda Motor (China) Investment Co., Ltd. (HMCI), announced that Dongfeng Honda Automobile Co., Ltd., a Chinese automobile manufacturing company and a joint venture between HMC and Dongfeng Motor Group, would begin sales of the all-new e:NS1 electric vehicle (EV) model on April 26, 2022. The all-new e:NS1 and e:NP1 will feature the latest connectivity technologies available in China, including Honda CONNECT 3.0, the new-generation connected technology developed exclusively for EVs, and a large 15.1-Inch Display Audio, and offers the Driver Monitoring Camera (DMC), which assists safe driving by detecting potentially dangerous behavior. These EVs should see great demand and wide market reach in the coming months.
As of Dec. 31, 2021, the company had ¥2.69 trillion ($20.65 billion) in cash and cash equivalents. Analysts expect HMC’s EPS to grow 17.4% year-over-year to $3.22 for its fiscal year 2023, ending March 31, 2023. It surpassed The Street’s revenue estimates in three of the trailing four quarters. The $127.48 billion consensus revenue estimate for the same fiscal year represents a 14.3% rise from the prior-year period.
The stock’s 0.74x forward EV/Sales is 30.8% lower than the 1.07x industry average. In terms of forward Price/Sales, HMC is currently trading at 0.39x, which is 55.1% lower than the 0.88x industry average. Over the past week, the stock has declined 2.7% in price and closed yesterday’s trading session at $25.63.
HMC’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has an A grade for Value and a B grade for Stability, Sentiment, and Quality. Click here to see the additional ratings for HMC’s Growth and Momentum. HMC is ranked #6 of 69 stocks in the Auto & Vehicle Manufacturers industry.
Nissan Motor Co., Ltd. (NSANY)
Headquartered in Yokohama, Japan, NSANY manufactures and sells automobiles and parts and provides sales financial services worldwide. The company participates in the promotion of motorsports, including race and motorsports event planning, vehicle remodeling, the sale of car parts and accessories for motorsports, and demonstration test and commercialization studies for second-life use of lithium-ion batteries for automotive use.
On April 25, 2022, NSANY announced a new driver-assistance technology (currently in development) that utilizes highly accurate, real-time information about the vehicle’s surrounding environment to enhance collision avoidance. This technology, developed in collaboration with other innovative companies, fuses information from next-generation high-performance LIDAR, radar, and cameras, which helps vehicles instantly analyze a situation and automatically perform required collision-avoidance operations. NSANY should witness heightened demand for this technology after its launch.
NSANY’s gross profit for its fiscal 2021 third quarter, ended March 31, 2022, increased 5.1% year-over-year to ¥344.34 billion ($2.65 billion). The company’s operating income came in at ¥52.16 billion ($401.23 million), indicating a 92.3% rise from the year-ago period. Its net income was ¥37.32 trillion ($287.09 million) for the quarter, compared to a ¥32.41 billion ($249.34 million) loss in the prior-year period. The company had ¥1.79 trillion ($13.76 billion) in cash and cash equivalents as of March 31, 2022.
Analysts expect the company’s EPS to hit $1.10 for its fiscal year 2023, ending March 31, 2023, representing an 11.7% rise from the prior-year period. The $77.76 billion consensus revenue estimate for the same fiscal year represents a 15.8% year-over-year improvement.
The stock’s 0.89x forward EV/Sales is 17.4% lower than the 1.07x industry average. In terms of forward Price/Sales, NSANY is currently trading at 0.23x, which is 74.2% lower than the 0.88x industry average. Over the past week, the stock has declined 1.1% in price and closed yesterday’s trading session at $7.79.
NSANY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has an A grade for Value and a B grade for Growth. Click here to see the additional ratings for NSANY (Sentiment, Momentum, Quality, and Stability). NSANY is ranked #11 in the Auto & Vehicle Manufacturers industry.
Stellantis N.V. (STLA)
Based in the Netherlands, STLA designs, manufactures, and sells passenger vehicles, pickup trucks, SUVs, and light commercial vehicles worldwide. The company also produces metallurgical products and production systems for the automobile industry and provides retail and dealer financing, leasing, and rental services. It sells its products directly, as well as through distributors and dealers.
On May 3, 2022, Free2move, a joint venture between STLA and French utility company Engie SA’s Engie EPS business, announced that it had agreed to acquire Germany-based car-sharing company Share Now, a joint venture formed by Daimler AG’s (DDAIF) Mercedes-Benz Mobility Group and BMW Group (BMWYY). The acquisition will position Free2move as the car-sharing leader, adding 14 new European cities to Free2move’s seven existing mobility hubs in the United States and Europe, and enhancing technological expertise to satisfy customers’ varied mobility needs. Also, this is a major step towards achieving STLA’s Dare Forward 2030 goal of growing its profitable mobility service.
For its fiscal 2021 full year, ended Dec. 31, 2021, STLA’s net revenues increased 13.6% year-over-year to €152.12 billion ($160.75 billion). The company’s pro forma adjusted operating income came in at €18.01 billion ($19.03 billion), up 95.3% from the prior-year period. Its pro forma net profit was €14.34 billion ($15.15 billion), representing a 210.7% rise from the prior-year period. STLA’s pro forma EPS came in at €4.55, indicating a 218.2% year-over-year improvement. The company had €49.63 billion in cash and cash equivalents as of Dec. 31, 2021.
Analysts expect the stock’s EPS to improve 16.3% year-over-year to $5 for its fiscal year 2022 ending Dec.31, 2022. The $177.79 billion consensus revenue estimate for the same fiscal year represents a 3.4% rise from the prior-year period.
STLA’s 0.14x forward EV/Sales is 86.8% lower than the 1.07x industry average. In terms of forward Price/Sales, STLA is currently trading at 0.24x, which is 72.8% lower than the 0.88x industry average.
Over the past week, the stock has gained 1.7% in price to close yesterday’s trading session at $13.65.
STLA’s POWR Ratings reflect its solid prospects. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has an A grade for Value and a B grade for Sentiment and Quality. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for STLA’s Stability, Growth, and Momentum here. STLA is ranked #3 in the Auto & Vehicle Manufacturers industry.
Mazda Motor Corporation (MZDAY)
Headquartered in Hiroshima, Japan, MZDAY manufactures and sells passenger cars, commercial vehicles, and related automobile parts internationally. The company’s principal products include four-wheeled vehicles, gasoline reciprocating engines, diesel engines, and automatic and manual transmissions for vehicles. It also distributes used automobiles and special purpose vehicles, automobile delivery inspection, and bodywork business.
On March 8, 2022, MZDAY’s Mazda Motor Europe business unveiled its new crossover SUV, the CX-60, the first of Mazda’s Large Product group models, offering enhanced driving pleasure and environmental and safety performance. This two-row, mid-sized SUV is equipped with e-Skyactiv PHEV, MZDAY’s first plug-in hybrid system featuring a 2.5L in-line four-cylinder gasoline engine and an electric motor. MZDAY was expected to begin producing the CX-60 at Hofu Plant No. 2 in Yamaguchi prefecture on March 11, 2022. It plans to introduce four models from our Large Product group to the in-high-demand global SUV market by the end of 2023. This should help MZDAY generate high demand and further growth.
MZDAY’s operating income for its fiscal year 2022 third quarter, ended Dec. 31, 2021, increased 14.7% year-over-year to ¥23.92 billion ($184.32 million). The company had ¥767.92 billion ($5.92 billion) in cash and cash equivalents as of Dec. 31, 2022.
Analysts expect the stock’s revenue to improve 18.2% year-over-year to $28.56 billion for its fiscal year 2023, ending March 31, 2023. The stock’s 0.23x forward EV/Sales is 78.3% lower than the 1.07x industry average. In terms of forward Price/Sales, MZDAY is currently trading at 0.19x, which is 78.2% lower than the 0.88x industry average. Over the past week, the stock has gained 1.4% in price and ended yesterday’s trading session at $3.60.
MZDAY’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to Buy in our proprietary rating system.
The stock has an A grade for Value and a B grade for Quality and Stability. Click here to see the additional ratings for MZDAY (Growth, Sentiment, and Momentum). The stock is ranked #13 in the Auto & Vehicle Manufacturers industry.
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HMC shares were trading at $25.02 per share on Wednesday afternoon, down $0.61 (-2.38%). Year-to-date, HMC has declined -12.06%, versus a -16.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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