The automotive industry is coming out of one of its most challenging periods due to the macroeconomic turbulence. However, the industry is expected to witness growth in the long term driven by improving consumer sentiments and the rapid switch to electric vehicles.
With advanced technology integration, innovative zero-emission vehicles and autonomous self-driving vehicles are expected to be more prevalent in the near term. Also, the number of electric vehicles in use is expected to reach 18.7 million by 2030.
The auto industry has been using robots in their assembly lines for over 50 years and remains one of the largest users of robots, with one of the most automated supply chains globally. The automotive robotics market is anticipated to reach $15.21 billion by 2027, at a CAGR of 11%.
Given this backdrop, fundamentally strong auto stocks General Motors Company (GM), Stellantis N.V. (STLA), and Honda Motor Co., Ltd. (HMC) might be ideal buys now.
General Motors Company (GM)
General Motors Company designs, builds, and sells trucks, crossovers, cars, and automobile parts and accessories worldwide. The company operates through GM North America; GM International; Cruise; and GM Financial segments.
On November 17, 2022, GM and Vale Canada Limited, a subsidiary of Vale S.A. (VALE), signed a long-term supply deal for battery-grade nickel sulfate to improve North American EV supply chains. This agreement is expected to aid GM in meeting its goal of producing one million electric vehicles annually in North America by 2025.
GM’s four-year average dividend yield is 2.08%, and its current annual dividend of $0.36 translates to a 0.99% yield on the prevailing price.
GM’s total net sales rose 56.4% year-over-year to $41.89 billion in the third quarter ended September 30, 2022. Its adjusted net earnings increased 47.5% year-over-year to $3.28 billion, while its adjusted EPS increased 48% year-over-year to $2.25.
GM’s revenue is expected to increase by 21.6% year-over-year to $40.83 billion in the to-be-reported quarter ended December 2022. Its EPS is expected to grow 23.9% from its prior-year quarter to $1.67 in the same quarter. It surpassed EPS estimates in three of four trailing quarters.
Over the past six months, the stock has gained 11.7% to close the last trading session at $36.44.
GM’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates 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.
It also has an A grade for Growth and a B for Value and Sentiment. The stock is ranked #16 out of 65 in the Auto & Vehicle Manufacturers industry.
Click here to access the additional POWR Ratings for GM (Stability, Quality, and Momentum).
Stellantis N.V. (STLA)
Headquartered in Hoofddorp, Netherlands, STLA designs, engineers, manufactures, distributes, and sells vehicles, components, and production systems. The company’s brand portfolio includes Abarth, Alfa Romeo, Chrysler, Dodge, Fiat, Fiat Professional, Jeep, Lancia, Ram, Peugeot, Citroen, DS Automobiles, Opel and Vauxhall, and Maserati.
On January 18, STLA and Terrafame Ltd. announced the signing of a supply agreement for nickel sulphate to be used in electric vehicle batteries.
Beginning in 2025, Finland-based Terrafame will supply Stellantis with nickel sulphate over the five-year term of the agreement. The Terrafame agreement is a part of Stellantis’ aggressive electrification strategy and will cover a significant portion of the needs for a sustainable, regionally sourced nickel.
On January 17, 2022, STLA and Vulcan Energy Resources Limited signed a binding term sheet for the first phase of a multiphase project to develop new geothermal projects aimed at decarbonizing the energy mix of Stellantis’ Rüsselsheim industrial site in Germany, which is home to both the DS4 and Opel Astra.
Based upon current assumptions, the project could provide a significant portion of the industrial site’s annual energy needs starting in 2025.
Its four-year average dividend yield is 10.51%, and its annual dividend of $1.12 translates to a 7.34% yield. The company’s dividend has grown at a 17.3% CAGR over the past three years.
For the half-year ended June 30, 2022, STLA’s net revenues increased 21.2% year-over-year to €88 billion ($95.12 billion). Its operating income rose 40.5% from the prior-year period to €10.32 billion ($11.16 billion). Net profit and EPS came in at €7.96 billion ($8.60 billion) and €2.47, up 17.2% and 17.1% year-over-year, respectively.
Street expects STLA’s revenue to increase 10.7% year-over-year to $190.36 billion for the fiscal year ended December 2022.
The stock has gained 24.6% over the past three months to close the last trading session at $15.28.
STLA’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It also has an A grade for Value and a B grade for Stability. It is ranked #9 in the same industry.
To see the additional ratings of STLA for Growth, Momentum, Sentiment, and Quality, click here.
Honda Motor Co., Ltd. (HMC)
Headquartered in Tokyo, Japan, HMC produces and sells motorcycles, automobiles, and power products. It also sells spare parts and provides after-sales services directly through retail dealers, independent distributors, and licensees. The company operates through four business segments: Motorcycle; Automobile; Financial service; and Life creation.
On January 13, LG Energy Solution and HMC entered into a JV agreement to produce lithium-ion batteries for electric vehicles. The plant aims to have an annual production capacity of approximately 40GWh. This strategic alliance is expected to generate substantial revenues in the upcoming years.
HMC’s four-year average dividend yield is 3.39%, and its annual dividend of $1.42 translates to a 5.98% yield. The company’s dividend has grown at a 6.7% CAGR over the past three years.
During the fiscal second quarter that ended September 30, 2022, HMC’s sales revenue increased 25% year-over-year to ¥4.26 trillion ($32.95 billion). Its operating profit rose 16.2% year-over-year to ¥231.20 billion ($1.79 billion), while profit for the year attributable to owners of the parent came in at ¥189.20 billion ($1.46 billion), up 13.6% from its year-ago period.
Analysts expect HMC’s revenue to increase 402.2% year-over-year to $134.13 billion in the current fiscal year ending March 2023.
Shares of HMC have gained 8.5% over the past three months to close the last trading session at $23.80.
It is no surprise that HMC has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B grade for Stability and Quality. Within the same industry, it is ranked #7.
In addition to the POWR Rating grades highlighted above, you can see the HMC ratings for Growth, Momentum, and Sentiment here.
GM shares were trading at $35.25 per share on Thursday morning, down $1.19 (-3.27%). Year-to-date, GM has gained 4.79%, versus a 1.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor’s degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More…
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