Despite macroeconomic concerns, auto sales are likely to rise as a result of pent-up demand and technological advances. Given the industry’s growth prospects, investors could consider buying fundamentally sound auto stocks Volkswagen AG (VWAGY), Sonic Automotive, Inc. (SAH) and Strattec Security Corporation (STRT) for solid returns.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the auto industry.
In November, the number of new vehicles sold in the U.S. was 1,242,376 units, up 8.8% from October 2022 and 2.6% from October 2023. The holiday season, manufacturer promotions, and rising demand for electric vehicles boost overall new vehicle sales.
The car rental market is expected to grow at a 7.4% CAGR until 2032. Online booking systems and smartphone applications have transformed the car rental industry by allowing users to easily compare costs, select vehicles, and make bookings.
Furthermore, the global auto parts and accessories market is estimated to reach $877.12 billion by 2030, with a 5.7% CAGR. This growth can be attributed to several factors, including increasing vehicle production and sales worldwide. Additionally, the rising demand for advanced technologies and innovations in the automotive industry is also expected to drive market growth in the coming years.
Considering these conducive trends, let’s examine the fundamentals of the three auto stock picks.
Volkswagen AG (VWAGY)
Headquartered in Wolfsburg, Germany, VWAGY manufactures and sells automobiles primarily in Europe, North America, South America, and the Asia-Pacific region. The company has four segments: Commercial Vehicles; Power Engineering; Financial Services; and Passenger Cars and Light Commercial Vehicles.
VWAGY’s forward EV/EBITDA multiple of 6.45 is 36.3% lower than the industry average of 10.12. Its forward Price/Cash Flow multiple of 1.74% is 82.9% lower than the industry average of 10.16.
VWAGY’s trailing-12-month CAPEX / Sales of 4.67% is 53.8% higher than the industry average of 3.04%. Its trailing-12-month levered FCF margin of 11.27% is 114.5% higher than the industry of 5.25%.
During the third quarter that ended September 30, 2023, VWAGY’s sales revenue increased 11.6% year-over-year to €78.85 billion ($86 billion). Its operating result improved 14.9% from the year-ago quarter to €4.89 billion ($5.34 billion), and its earnings after tax amounted to €4.35 billion ($4.74 billion), up 103.6% year-over-year.
Analysts expect VWAGY’s revenue to increase marginally year-over-year to $343.57 billion for the year ending December 2024. Its EPS is expected to come in at $5.38 for the same period. The stock has lost marginally over the past month to close the last trading session at $12.98.
VWAGY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
VWAGY also has an A grade for Value and Stability and a B for Sentiment. It is ranked #6 out of 52 stocks in the Auto & Vehicle Manufacturers industry. Click here for the additional POWR Ratings for Growth, Momentum and Quality for VWAGY.
Sonic Automotive, Inc. (SAH)
SAH is an automotive retailer operating in three segments: Franchised Dealerships; EchoPark; and Powersports. The company sells new and used cars, provides maintenance and repair services, and offers financing and insurance options.
SAH’s forward non-GAAP P/E of 8.05x is 50.3% lower than the industry average of 16.20x. Its forward EV/Sales of 0.36x is 71.5% lower than the industry average of 1.25x.
SAH’s trailing-12-month ROTC of 8.27% is 37.3% higher than the industry average of 6.02%. Its trailing-12-month asset turnover ratio of 2.91x is 192.9% higher than the industry average of 0.99x.
For the third quarter ended September 30, 2023, SAH reported total revenues of $3.64 billion, up 5.7% year-over-year. Its gross profit increased marginally year-over-year to $582.2 million. The company’s cost of sales declined 6.8% year-over-year to $3.06 billion. Moreover, it generated an adjusted EBITDA of $167.20 million.
The consensus revenue came in at $14.54 billion for the fiscal year ending December 2024 represents a marginal increase year-over-year. Its EPS is expected to come in at $6.95 for the same year. It surpassed EPS estimates in three of four trailing quarters. Shares of SAH has gained 17.7% over the past three months to close the last trading session at $56.21.
SAH’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
SAH has a B grade for Growth and Value. It ranks #6 out of 20 stocks in the Auto Dealers & Rentals industry. Click here to access additional SAH ratings (Stability, Sentiment, Momentum and Quality).
Strattec Security Corporation (STRT)
STRT designs, develops, manufactures, and markets automotive access control products under the VAST Automotive Group brand primarily in North America.
STRT’s forward EV/Sales of 0.25x is 79.8% lower than the industry average of 1.25x. Its forward EV/EBITDA of 8.88x is 12.3% lower than the industry average of 10.12x.
STRT’s trailing-12-month asset turnover ratio of 1.54x is 54.7% higher than the industry average of 0.99x. Its trailing-12-month CAPEX / Sales of 3.07% is marginally higher than the industry average of 3.04%.
STRT’s net sales rose 12.5% year-over-year to $135.41 million for the fiscal first quarter that ended October 1, 2023. Its gross profit grew 49.8% from the year-ago value to $18.72 million.
Furthermore, the company’s net income and earnings per common share came in at $4.17 million and $1.05, up significantly year-over-year, respectively.
Street expects STRT’s revenue to increase marginally year-over-year to $500.78 million for the fiscal year ending June 2024. Its EPS is expected to increase 67.1% for the same period. Shares of STRT has gained 43% over the past six months to close the last trading session at $25.34.
STRT has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Sentiment and a B for Stability and Value. It is ranked #15 out of 61 stocks in the A-rated Auto Parts industry.
Beyond what is stated above, we’ve also rated STRT for Growth, Momentum and Quality. Get all STRT ratings here.
What To Do Next?
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VWAGY shares were trading at $12.97 per share on Tuesday morning, down $0.02 (-0.12%). Year-to-date, VWAGY has declined -0.08%, versus a -0.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
3 Auto Stock Aces to Buy for 2024 StockNews.com
