Supply chain constraints and shutdowns have negatively impacted auto production. Although auto manufacturers witnessed solid sales growth in the first half of 2021 compared to the same period last year, the chip shortage is expected to continue marring the industry’s growth in the near term. However, there have been investments on a global scale to increase capacity. 

Given the strong demand for autos due to the strong economy and consumer spending, fundamentally sound auto manufacturers Stellantis N.V. (STLA) and Ferrari N.V. (RACE) are expected to thrive.

However, Li Auto Inc. (LI) and Lordstown Motors Corp. (RIDE) are not well-positioned to capitalize on the industry tailwinds. Thus, they are best avoided now.

Stocks to Buy:

Stellantis N.V. (STLA)

Based in the Netherlands, STLA is engaged in designing, manufacturing, and selling 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 September 1, 2021, STLA entered into a definitive agreement to acquire F1 Holdings Corp., parent company to First Investors Financial Services Group, a leading independent U.S. auto finance company, for approximately $285 million. First Investors’ vast experience and an outstanding financial and operational platform will enable STLA to provide its customers and dealers a complete range of financing options and increase reach in the U.S. market.

On August 26, 2021, STLA, along with Taiwanese multinational electronics contract manufacturer Hon Hai Precision Industry Co., Ltd. (Foxconn) and its subsidiary FIH Mobile Ltd., agreed to form a Mobile Drive joint venture entity, to focus on delivering a smart cockpit solution for vehicles that will foster the development of infotainment and telematics solutions, and a cloud service platform. By expanding the reach and impact of the Mobile Drive venture, the companies aim to be a global leader in smart cockpit and connected vehicle solutions.

STLA’s pro forma net revenues for its fiscal half-year ended June 30, 2021, increased 45.8% year-over-year to €75.31 billion ($88.91 billion). The company’s pro forma adjusted operating profit came in at €8.62 billion ($10.18 billion), representing a 1046.5% rise from the prior-year period. STLA’s pro forma adjusted net profit increased 1810% year-over-year to €6.90 billion ($8.14 billion). Its adjusted EPS increased 1691.7% year-over-year to €2.15. The company had €40.81 billion ($48.18 billion) in cash and cash equivalents as of June 30, 2021.

The consensus EPS estimate of $3.98 for the current year indicates a 199.6% rise from the prior year period. Analysts expect STLA’s revenue to increase 14.4% year-over-year to $185.45 billion in the current year. It surpassed Street EPS estimates in each of the trailing four quarters, which is impressive. Over the past six months, the stock has gained 7.9% in price to close yesterday’s trading session at $20.04.

STLA’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. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

STLA has an A grade for Sentiment. In the 63-stock Auto & Vehicle Manufacturers industry, it is ranked #13.

To see additional POWR Ratings for Momentum, Quality, Value, Growth, and Stability for STLA, click here.

Ferrari N.V. (RACE)

RACE is an Italy-based designer, manufacturer, and retailer of luxury sports cars, spare parts, and engines. The company offers new and used vehicles, warranty programs, financial support, and maintenance, as well as apparel and other accessories through authorized dealers and its website worldwide. It also licenses its brand to various producers and retailers of luxury and lifestyle goods.

On September 13, 2021, RACE purchased additional common shares as part of its share buyback program on the Italian Stock Exchange (MTA) and the New York Stock Exchange (NYSE). The company expects to boost the stock’s value and improve its financials in the upcoming months.

During the fiscal second quarter ended June 30, 2021, RACE’s total net revenues increased 81.3% year-over-year to €1.04 billion ($1.22 billion). The company’s adjusted EBITDA came in at €386 million ($706 million), indicating a 211.3% rise from the prior-year period. RACE’s adjusted net profit came in at €206 million ($243.17 million) for the quarter, representing 2188.9% from the year-ago period. Its adjusted EPS increased 2675% year-over-year to €1.11. The company had €922 million ($1.09 billion) in cash and cash equivalents as of June 30, 2021.

Analysts expect RACE’s EPS to grow 46.1% year-over-year to $5.06 in the current year. The consensus revenue estimate of $5.06 billion for the current quarter represents a 21.5% rise from the prior year period. The stock surpassed consensus EPS estimates in each of the trailing four quarters. RACE’s EPS is expected to grow at a rate of 14.8% per annum over the next five years.

RACE has gained 12% in price over the past six months and 3.8% over the past three months. It ended yesterday’s trading session at $220.78.

RACE’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which translates to Buy. RACE has a B grade for Stability, Sentiment, and Quality. Moreover, it is ranked #14 in the same industry.

In addition to the POWR Rating grades we’ve highlighted, one can see RACE’s ratings for Growth, Value, and Momentum, here.

Stocks to Avoid:

Li Auto Inc. (LI)

Headquartered in Beijing, China, LI designs, manufactures, and sells smart electric sport utility vehicles (SUVs). The company offers Li ONE, a six-seat electric SUV equipped with a range of extension systems and smart vehicle solutions. LI sells peripheral products and provides related services, such as charging stalls, vehicle internet connection services, and extended lifetime warranties.

LI delivered 9,433 Li ONEs in August 2021, up 248% from the prior year period. LI’s total revenues rose 158.8% year-over-year to $780.44 million for its fiscal second quarter ended June 30, 2021. The company’s gross profit came in at $147.57 million, indicating a 266.9% from the prior year period. However, its non-GAAP loss from operations came in at $56.62 million, up 107.4% from the prior-year period. While its non-GAAP net loss decreased 59.1% year-over-year to $10.08 million, its non-GAAP loss per share declined 94.4% to $0.01. The company had $1.87 billion in cash and cash equivalents as of June 30, 2021.

LI’s EPS is expected to remain negative in the current year. It has failed to surpass the consensus EPS estimates in two of the trailing four quarters. And the stock has declined 4.9% in price over the past nine months to close yesterday’s trading session at $29.81.

LI’s weak prospects are reflected in its POWR Ratings. The stock has an overall F rating, which equates to Strong Sell in our proprietary rating system.

LI has an F grade for Stability, and a D grade for Value, Sentiment, and Quality. It is ranked #54 in the same industry.

To see additional POWR Ratings for LI’s Growth and Momentum, click here.

Lordstown Motors Corp. (RIDE)

RIDE is an automotive company that designs and manufactures light-duty electric trucks targeted for sale to fleet customers. The company’s integrated software monitors and adjusts each wheel, and its telematics system provides owners with a range of data for fleet management. The company’s Lordstown Endurance vehicle is a popular electric pickup truck.

On behalf of RIDE investors, various class-action lawsuits have been filed against certain directors and officers of RIDE lately. The plaintiffs allege that the defendants failed to disclose that the company’s purported pre-orders for Lordstown Endurance were non-binding and that the first test run of the Lordstown Endurance led to the vehicle bursting into flames within 10 minutes, and the company has not been “on track” to commence production of the Endurance in September 2021. Also, the resignation of RIDE’s CEO Steve Burns and CFO Julio Rodriguez is likely to make investors lose confidence in RIDE now.

For the fiscal second quarter, ended June 30, 2021, RIDE’s loss from operations increased 1009.9% year-over-year to $110.34 million. The company’s net loss came in at $108.20 million, up 1259.6% from the prior year period. Its loss per share increased 454.5% year-over-year to $0.61. The company had $365.90 million in cash and cash equivalents as of June 30, 2021.

RIDE’s EPS is expected to remain negative in the current year. Moreover, it missed Street EPS estimates in each of the trailing four quarters. The stock’s EPS is expected to decline at a rate of 27.1% per annum over the next five years.

RIDE lost 68.1% year-to-date and 30.9% over the past three months. It ended yesterday’s trading session at $6.40.

RIDE’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which translates to Strong Sell. In addition, RIDE has an F grade for Growth, Sentiment, Stability and Value, and a D grade for Quality. Moreover, it is ranked #61 in the same industry.

In addition to the POWR Rating grades I’ve highlighted, one can see RIDE’s ratings for Momentum here.

STLA shares were trading at $20.78 per share on Wednesday afternoon, up $0.74 (+3.69%). Year-to-date, STLA has gained 14.87%, versus a 20.70% 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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