Top 3 Auto Giants at the Forefront of Market Gains

The automotive industry is poised for substantial expansion, thanks to the rising demand for EVs, high new vehicle sales amid affordable financing, and advancements in autonomous vehicles. Given this backdrop, it could be wise to buy top auto stocks Mercedes-Benz (MBGAF), Subaru (FUJHY), and Honda Motor (HMC) for potential gains. Read more...

The automotive industry is growing considerably, with rapid urbanization and population growth influencing demand for new vehicles, rising disposable incomes, and the global transition to EVs and hybrid cars amid increasing environmental awareness and government support.

Given the industry’s tailwinds, investors could consider buying fundamentally sound auto stocks Mercedes-Benz Group AG (MBGAF), Subaru Corporation (FUJHY), and Honda Motor Co., Ltd. (HMC), which are at the forefront of market gains.

Increasing demand for high-end passenger vehicles, urbanization, and rising infrastructure spending in developing economies are driving the auto industry’s growth. Also, with technological advancements, increasing environmental consciousness, and supportive government policies, EVs have gained significant traction worldwide.

The global electric vehicle market is expected to exceed $951.90 billion by 2030, growing at a CAGR of 13.7%.

Moreover, Fed Chair Jerome Powell and colleagues are considering easing inflation-fighting efforts after raising interest rates to a two-decade high. This shift, signaling a pause in rate hikes and potential cuts, could fuel growth in the automotive sector. With this, the U.S. new vehicle sales are predicted to increase by 1% to 15.70 million units this year.

In addition, Artificial Intelligence (AI) is revolutionizing the automotive industry, driving advancements in autonomous vehicles and improving production capabilities, supported by growing consumer demand and government initiatives. The global automotive AI market is expected to grow at a CAGR of 22.7% by 2030.

Considering these encouraging trends, let’s take a look at the fundamentals of the three best Auto & Vehicle Manufacturers industry stocks, beginning with the third choice.

Stock #3: Mercedes-Benz Group AG (MBGAF)

Based in Stuttgart, Germany, MBGAF operates as a global automotive company. It develops, manufactures, and sells premium and luxury cars and vans under the Mercedes-AMG, Mercedes Benz, Mercedes-Maybach, and Mercedes-EQ brands, as well as related spare parts and accessories. It also offers financing, leasing, car subscription and rental, and other services.

MBGAF distributes an annual dividend of $5.72, which yields 7.17% on the current market price, higher than its four-year average dividend yield of 5.09%. The company’s dividend payouts have increased at a CAGR of 14.8% over the past five years.

MBGAF’s trailing-12-month EBIT margin of 11.41% is 49.6% higher than the industry average of 7.63%. Also, the stock’s trailing-12-month EBITDA and net income margin of 13.93% and 9.31% are 26.7% and 96.1% higher than the industry averages of 10.99% and 4.75%, respectively.

For the fiscal year that ended December 31, 2023, MBGAF’s revenue increased 2.1% year-over-year to €153.22 billion ($165.84 billion). Its adjusted EBIT stood at €19.66 billion ($21.29 billion). The company reported net profit and EPS of €14.53 billion ($15.73 billion) and €13.46, respectively.

Analysts expect MBGAF’s revenue for the third quarter (ending September 2024) to increase 5.5% year-over-year to $41.44 billion. For the fiscal year ending December 2025, Street expects its revenue to grow 1.9% year-over-year to $167.73 billion. Moreover, the company topped consensus EPS estimates in three of the trailing four quarters, which is impressive.

MBGAF’s stock has soared 16% over the past six months to close the last trading session at $79.72.

MBGAF’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

The stock has a B grade for Quality, Value, Growth, Momentum, and Stability. It is ranked #4 in the 58-stock Auto & Vehicle Manufacturers industry.

Beyond what is stated above, we’ve also rated MBGAF for Sentiment. Get all MBGAF ratings here.

Stock #2: Subaru Corporation (FUJHY)

Based in Tokyo, Japan, FUJHY manufactures and sells automobiles and aerospace products in Japan, the rest of Asia, North America, Europe, and internationally. The company operates through three segments: Automotive; Aerospace; and Others.

On March 19, 2024, FUJHY and Panasonic Panasonic Energy Co., Ltd., a Panasonic Group Company, signed a basic cooperative agreement covering the supply of cylindrical automotive lithium-ion batteries.

In July last year, the two companies began discussions aimed at building a medium- to long-term partnership to serve the expanding market for battery electric vehicles (BEVs) and automotive batteries. These discussions have now resulted in the signing of this agreement.

FUJHY’s trailing-12-month EBIT margin of 9.61% is 26% higher than the industry average of negative 7.63%. Its trailing-12-month EBITDA margin of 14.63% is 33.1% higher than the 10.99% industry average. Also, the stock’s trailing-12-month net income margin of 7.73% is 62.8% higher than the 4.75% industry average.

During the nine months that ended December 31, 2023, FUJHY’s revenue increased 24.5% year-over-year to ¥34.96 billion ($230.83 million). Its operating profit rose 73.6% from the year-ago value to ¥3.71 billion ($24.50 million). Also, profit for the period attributable to owners of parent increased 93.5% year-over-year to ¥2.99 billion ($19.70 million).

Analysts expect FUJHY’s revenue for the fourth quarter ending March 2024 to increase 7.6% year-over-year to $7.73 billion. Additionally, the company has surpassed the consensus revenue estimates in each of the trailing four quarters, which is remarkable.

Shares of FUJHY have gained 26.1% over the past three months to close the last trading session at $11.31.

FUJHY’s POWR Ratings reflect bright prospects. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system.

FUJHY has an A grade for Value and a B in Quality, Stability, and Growth. It is ranked #3 in the same industry.

In addition to the POWR Ratings highlighted above, one can access FUJHY’s ratings for Sentiment and Momentum here.

Stock #1: Honda Motor Co., Ltd. (HMC)

Based in Tokyo, Japan, HMC develops, manufactures, and distributes motorcycles, automobiles, power, and other products globally.

On March 15, 2024, HMC signed a memorandum of understanding with Nissan Motor Co., Ltd. (NSANY), under which the companies will begin a feasibility study of a strategic partnership in the fields of vehicle electrification and intelligence. The scope of the feasibility study includes automotive software platforms, core components related to EVs, and complementary products.

HMC’s trailing-12-month EBITDA margin of 13.08% is 19% higher than the industry average of 10.99%, and its trailing-12-month net income margin of 4.84% is 2% higher than the industry average of 4.75%. In addition, the stock’s trailing-12-month levered FCF margin of 7.29% is 31.2% higher than the 5.56% industry average.

HMC’s sales revenue during the nine months ended December 31, 2023, increased 19.8% year-over-year to ¥15 trillion ($99 billion). Its operating profit rose 46.7% year-over-year to ¥1.08 trillion ($7.13 billion). The company’s profit for the period grew 45.9% over the prior year’s period to ¥924.69 billion ($6.11 billion).

Analysts expect HMC’s revenue to increase 11.3% year-over-year to $36.27 billion for the fiscal fourth quarter ending March 2024. Shares of HMC have surged 44.3% over the past year to close the last trading session at $37.32.

HMC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to Strong Buy in our proprietary rating system.

HMC has an A grade for Stability and a B in Sentiment, Growth, Value, and Quality. It is ranked first in the same industry.

Click here to access the additional HMC ratings (Momentum).

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

MBGAF shares were trading at $79.85 per share on Thursday morning, up $0.13 (+0.16%). Year-to-date, MBGAF has gained 15.56%, versus a 10.50% rise in the benchmark S&P 500 index during the same period.

About the Author: Nidhi Agarwal

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.


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