The pandemic forced countries around the world to shut down for two to four weeks, and even longer in some cases. As a complete halt in the manufacturing sector resulted in widespread unemployment, people shied away from buying new cars. The trend has not reversed yet, as reduced income, higher savings levels, and high healthcare costs are still holding people back from buying new cars.
According to the IHS Markit survey, Global auto sales are expected to fall by 22% this year, with the United States witnessing a decline of 26.6%. The economy has started showing early signs of recovery, but it might take longer for car buyers to feel confident spending the money. However, one company defying all challenges is Tesla, Inc. (TSLA). With a stock up more than 375% year-to-date, TSLA is one of the best performing stocks of 2020. The recent soaring share prices of TSLA can be attributed to the announcement of a 5-for-1 stock split, expected demand for its Model 3 vehicles in China, and high expectation related to its battery development.
There are other car companies aside from TSLA are worth looking at. While the car market gradually recovers, companies such as Toyota Motor Corporation (TM), Ferrari N.V. (RACE), and Winnebago Industries, Inc. (WGO) are expected to see stronger growth by the end of 2020 due to their strong brand value and financial flexibility.
Toyota Motor Corporation (TM)
As one of the most sought-after car manufacturers in the United States, TM is known for its passenger cars, commercial vehicles, minivans, and hybrid cars. It operates under three segments — Automotive, Financial Services and All other segments. Financial services operations constitute retail and wholesale leasing and financing, insurance, etc.
On August 14th, TM and Mazda Motor Corporation pledged an additional $380 billion to introduce cutting edge production technologies in the car manufacturing industry. This joint venture was originally announced in 2018 and is currently worth $2.31 billion.
The car industry has slowed down since the onset of the coronavirus, as the demand for new vehicles plummeted. However, TM has managed to survive this recession owing to its huge market valuation of over $186 billion. The stock has gained more than 25% since hitting its 52-week low of $108.01 in March.
How does TM stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Peer Grade
B for Industry Rank
A for Overall POWR Rating.
You can’t ask for better. It is also ranked #2 out of 28 in the Auto & Vehicle Manufacturers industry.
Ferrari N.V. (RACE)
As one of the most famous luxury sports car manufacturing brands around the world, RACE gained more than 55% since its March lows, to hit its 52-week high in August. On August 18th, RACE signed two agreements with FIA and Formula One, under the Concorde Agreement. This deal provides a regulatory guidance of the highest-level motorsport series from 2021 to 2025.
The pandemic has adversely affected car sales, causing RACE’s net profits to fall year-over-year in the first fiscal quarter ended June 2020. However, despite lower sales and operating margin, RACE managed to generate a profit of €9 million. The consensus EPS estimate of $1.04 for the second fiscal quarter ending September 2020, indicates a slight improvement from the same period last year. The street revenue estimate of $1.13 billion indicates a 12.4% growth year-over-year.
It’s no surprise that RACE is rated a Strong Buy in our POWR Ratings system, with a grade of A in Trade Grade, Buy & Hold Grade, and Peer Grade. In the Auto & Vehicle Manufacturers industry, the stock is ranked #3 out of 28 companies.
Winnebago Industries, Inc. (WGO)
WGO is a retail manufacturer and seller of recreational vehicles and marine products under five segments — Grand Design Towables, Winnebago Towables, Winnebago Motorhomes, Chris-Craft Marine, and Winnebago Specialty Vehicles. It distributes its products through independent dealers across the United States and Canada. WGO’s second-quarter (ended May 2020) results reflected the impact of the covid-19 crisis on the business. However, as the United States is gradually recovering from this shock, analysts expect the company to show strong recovery in the third quarter.
The consensus revenue estimate of $710.28 million for the third quarter indicates a 13% improvement year-over-year. WGO has an impressive earnings surprise history as well, as it surpassed the street EPS estimates in three out of trailing four quarters. In the previous quarter, WGO beat the consensus EPS estimates by 40.9%. WGO gained more than 325% since hitting its 52-week low of $16.94 in March. The stock eventually hit its 52-week high of $72.65 in June.
WGO is rated a Buy in our POWR Ratings system, consistent with analysts’ expectations for the upcoming quarter. It holds a grade of B in Trade Grade and Industry Rank. It is also ranked #14 out of 28 in the Auto & Vehicle Manufacturers industry.
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TM shares were trading at $134.76 per share on Wednesday afternoon, down $0.03 (-0.02%). Year-to-date, TM has declined -2.59%, versus a 8.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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