With sustained demand for new vehicles, a growing global transition to electric vehicles (EVs), the rapid adoption of digital technology, and the introduction of e-commerce platforms, the automotive industry is well-positioned for significant growth in the long term.
Given the industry tailwinds, it could be wise to invest in robust auto stocks AB Volvo (publ) (VLVLY), Visteon Corporation (VC), and Rush Enterprises, Inc. (RUSHA) for potential gains this month.
Despite UAW labor strikes, U.S. new vehicle sales of 1.21 million units for October 2023 represented a 2% increase from a year ago in October 2022. Light vehicle seasonally adjusted annualized sales (SAAR) for the month were 15.64 million units, compared to 14.74 million units a year earlier.
The growing transition to electric vehicles (EVs) around the globe, supported by government initiatives, including ambitious zero-emissions targets, vehicle tax incentives and subsidies, and affordable options, is transforming the auto industry. Electric car markets are witnessing exponential growth as sales exceeded 10 million last year.
The share of electric cars in total sales has more than tripled in the past three years, from nearly 4% in 2020 to 14% in 2022. Further, EV sales are anticipated to reach 14 million by the end of 2023, representing an increase of 35% year-over-year. As a result, electric cars could account for approximately 18% of total car sales through this year.
As per Atlas Public Policy, EV sales are expected to hit a record 9% of all passenger vehicles in the U.S. in 2023, compared to 7.3% of new car sales last year.
The growing demand for vehicles globally, the rising demand for electric and hybrid vehicles, and the surge in e-commerce platforms are further propelling the growth of the auto parts market. Moreover, the increasing trend of automotive customization will likely be one of the critical drivers for the market in the near future.
The global auto parts market is projected to a value of $1.10 trillion by 2030, expanding at a CAGR of 6.8% during the forecast period (2023-2030).
Given the favorable industry trends, investing in quality auto stocks VLVLY, VC, and RUSHA could be wise for substantial gains this month.
Let’s discuss the fundamentals of these stocks in detail:
AB Volvo (publ) (VLVLY)
Headquartered in Gothenburg, Sweden, VLVLY manufactures and sells trucks, buses, construction equipment, and marine and industrial engines worldwide. The company provides products under the brands – Volvo, Renault Trucks, UD Trucks, Eicher, Arquus, and Dongfeng Trucks.
On November 14, VLVLY and CRH, the global leader in building materials solutions, signed a Memorandum of Understanding (MoU) to accelerate net-zero innovations in the design and deployment of on-road vehicles and off-road equipment used in construction with a focus on next-gen technology deployment, scaling cutting-edge technology, and operational efficiency.
This collaboration aligns with VLVLY’s ambitious journey to reduce emissions. The company aims to have 35% fully electric sales by 2030 and be net-zero in its value chain by 2040.
On November 10, VLVLY announced that it had been selected as the winning bidder in an auction for the business and assets of the Proterra Powered business unit at a purchase price of $210 million. The transaction between Volvo and Proterra Inc. and Proterra Operating Company as sellers is subject to approval by the bankruptcy court in the U.S.
The assets to be acquired include a development center for battery modules and packs in California and an assembly factory in South Carolina. With this acquisition, Volvo will complement the current and accelerate its future battery-electric road map.
For the third quarter that ended September 30, VLVLY’s net sales grew 15.2% year-over-year to SEK132.40 billion ($12.80 billion). Its adjusted operating income rose 61% from the year-ago value to SEK19.11 billion ($1.84 billion). The company’s EBITDA was SEK21.45 billion ($2.07 billion), up 22.2% from the previous year’s quarter.
In addition, the company’s income for the period amounted to SEK14.09 billion ($1.36 billion), representing an increase of 62.2% year-over-year. Its EPS rose 63.4% from the prior year’s quarter to SEK 6.93.
Street expects VLVLY’s EPS and revenue for the fiscal year (ending December 2023) to increase 58.1% and 12.4% year-over-year to $2.73 and $51.82 billion, respectively. Moreover, the company surpassed the consensus revenue estimate in three of the trailing four quarters.
Shares of VLVLY have gained 25.3% over the past six months and 33.4% over the past year to close the last trading session at $23.29.
VLVLY’s robust outlook is reflected in its POWR Ratings. 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, each weighted to an optimal degree.
The stock has an A grade for Stability and a B for Growth and Quality. It is ranked #5 out of 51 stocks in the B-rated Auto & Vehicle Manufacturers industry.
Click here to access additional VLVLY ratings for Sentiment, Value and Momentum.
Visteon Corporation (VC)
VC is an automotive technology company that engages in the design and manufacture of automotive electronics and connected car solutions for vehicle manufacturers internationally. It offers instrument clusters, information displays that integrate a range of user interface technologies, and infotainment and connected car solutions.
During the third quarter, VC’s products launched on 33 vehicle models. These products launches include a follow-on digital cluster launch on the Mercedes EQE, a new hybrid cluster program on the Ford Transit Custom and Transit Courier in Europe.
Also, follow-on digital cluster launches on three high-volume vehicle lines for Tata in India were part of key product launches. Visteon further announced securing $5.8 billion in new business through the first nine months of 2023. Third-quarter wins were its first AllGo™ App Store and connected services for an Indian OEM.
Also, VC won the conquest digital cockpit system with a premium German OEM. These recent wins demonstrate that the company’s product portfolio continues to anticipate market trends.
VC’s revenue and EBITDA have grown at respective CAGRs of 17.2% and 29.6% over the past three years. The company’s EBIT has increased 50.1% over the same timeframe, while its tangible book value and total assets have improved at CAGRs of 36.7% and 2.9%, respectively.
During the third quarter that ended September 30, VC reported net sales of $1.01 billion, representing base sales growth of 9% from the previous year. The company’s adjusted EBITDA increased 34.7% year-over-year to $128 million. Its adjusted free cash flow reached $98 million, up 66.1% from the prior year’s quarter.
Furthermore, VC’s adjusted net income rose 48.9% year-over-year to $67 million. The company’s adjusted EPS was $2.35, an increase of 48.7% year-over-year.
As per its updated guidance for fiscal year 2023, VC’s sales are expected to be between $3.96 billion and $4.02 billion. Also, the company expects its adjusted EBITDA to be in the range of $415 - $445 million and adjusted free cash flow in the range of $115 - $165 million.
Street expects VC’s revenue and EPS for the fiscal year (ending December 2023) to increase 6.8% and 28.1% year-over-year to $4.01 billion and $6.83, respectively. For the fiscal year 2024, the company’s revenue and EPS are expected to grow 8.1% and 36.4% year-over-year to $4.33 billion and $9.31, respectively.
VC’s shares have gained marginally over the past month to close the last trading session at $121.20.
VC’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Growth and a B for Quality. Within the A-rated Auto Parts industry, VC is ranked #21 of 61 stocks.
In addition to the POWR Ratings we’ve stated above, we also have VC ratings for Value, Momentum, Stability, and Sentiment. Get all VC ratings here.
Rush Enterprises, Inc. (RUSHA)
RUSHA is an integrated retailer of commercial vehicles and related services in the U.S. and Canada. It operates through a network of commercial vehicle dealerships under the Rush Truck Centers name. The company also provides new and used commercial vehicles, aftermarket parts, and service and repair, financing, and rental services.
On October 25, RUSHA announced a cash dividend of $0.17 per share of Class A and Class B common stock, to be paid on December 12, 2023, to holders of record of Class A and Class B Common Stock as of November 9, 2023.
RUSHA pays an annual dividend of $0.68, which translates to a yield of 1.72% at the current share price. Its four-year average dividend yield is 1.35%. Also, the company’s dividend payouts have increased at a CAGR of 49.8% over the past three years. RUSHA has raised its dividends for five consecutive years.
RUSHA’s revenue and EBITDA have grown at respective CAGRs of 17.6% and 33.0% over the past three years. The company’s EBIT has increased 56.1% over the same timeframe, while its net income and EPS have improved at CAGRs of 55.5% and 55.4%, respectively.
In the third quarter that ended September 30, 2023, RUSHA’s total revenue increased 6.2% year-over-year to $1.981 billion. Its gross profit grew 3.4% year-over-year to $394.41 million. Also, the company’s adjusted EBITDA rose 2.6% from the year-ago value to $541.87 million.
Analysts expect RUSHA’s revenue for the fiscal year (ending December 2023) to increase 9.5% year-over-year to $7.77 billion. Also, the company topped the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.
RUSHA’s stock gained 10.6% over the past six months and 17.1% over the past year to close the last trading session at $39.47.
RUSHA’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 stock has a B grade for Value and Sentiment. RUSHA is ranked #8 of 21 stocks within the Auto Dealers & Rentals industry.
To see additional POWR Ratings of RUSHA for Growth, Stability, Quality and Momentum, Click here.
What To Do Next?
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VLVLY shares were unchanged in premarket trading Thursday. Year-to-date, VLVLY has gained 36.24%, versus a 20.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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