Strong demand for new vehicles, improved supply chains, increased demand for aftermarket parts, greater use of advanced components, and the shift to electric vehicles (EVs) supported by government incentives boost the auto industry’s prospects.
Therefore, it could be wise to buy fundamentally strong auto stocks: Mazda Motor Corporation (MZDAY), Cars.com Inc. (CARS), and Standard Motor Products, Inc. (SMP).
Before diving deeper into their fundamentals, let’s discuss why the auto industry is well-positioned for growth.
The auto industry is expected to grow in the upcoming quarters because of improving economic conditions, having enough inventory, and resolving supply chain problems. In October, U.S. new vehicle sales rose to 1.21 million units, up 2% year-over-year, driven by growing interest in electric vehicles and a stronger economy.
In the third quarter, electric vehicle (EV) sales set a record by surpassing 300,000 units in the U.S., and cumulative sales for the first nine months reached 873,000. This suggests that the milestone of over a million sales can be achieved in November. The International Energy Agency predicts a 35% year-over-year increase in EV sales for 2023, reaching a total of 14 million units.
On the other hand, demand for auto parts is rising as new car prices and high interest rates on car loans force people to hang on to their old cars by repairing them. There's a 62% year-over-year jump in unsold new vehicles in the U.S. as buyers held off on new car purchases.
Let's take a closer look at the fundamentals of the featured stocks.
Mazda Motor Corporation (MZDAY)
Headquartered in Hiroshima, Japan, MZDAY manufactures and sells passenger cars and commercial vehicles in Japan, China, North America, Europe, and internationally.
MZDAY’s 6.25% trailing-12-month Return on Total Capital is 3.9% higher than the 6.01% industry average. Likewise, its 4.71% trailing-12-month Return on Total Assets is 18.7% higher than the 3.97% industry average. Furthermore, the stock’s 1.34x trailing-12-month asset turnover ratio is 34.5% higher than the 0.99x industry average.
For the second quarter that ended September 30, 2023, MZDAY’s net sales increased 41.1% year-over-year to ¥2.32 trillion ($15.52 billion). Its operating income rose 134.6% over the prior-year quarter to ¥129.61 billion ($867.01 million).
For the same quarter, the company’s net income attributable to owners of the parent and net income per share stood at ¥108.13 billion ($723.32 million) and ¥171.49, up 25.9% and 25.9%, year-over-year, respectively.
For the quarter ending March 31, 2024, MZDAY’s revenue is expected to increase 3.1% year-over-year to $8.59 billion. The stock has gained 48.4% year-to-date to close the last trading session at $5.58.
MZDAY’s positive outlook is reflected in its POWR Ratings. It 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.
It has an A grade for Value and a B for Stability and Quality. It is ranked first out of 51 stocks in the Auto & Vehicle Manufacturers industry. To access MZDAY’s Growth, Momentum, and Sentiment ratings, click here.
Cars.com Inc. (CARS)
CARS operates as a digital marketplace and provides solutions for the automotive industry. Its platform connects car shoppers with sellers. The company offers services that connect sellers with buyers, provide financing tools, and empower shoppers with digital resources for car buying decisions.
On November 2, 2023, CARS acquired D2C Media Inc., a significant Canadian automotive tech provider. The upfront payment was CAD$105 million, with an additional CAD$35 million contingent on performance. This acquisition extends CARS' reach, fosters growth, and strengthens its position in Canada's auto tech sector, allowing for increased dealer service and closer collaboration with OEMs.
Alex Vetter, the CEO at CARS, expressed excitement about the acquisition of D2C Media, emphasizing the opportunity to expand further across North America and create value for Canadian retailers by simplifying the car buying and selling process.
On October 17, 2023, CARS unveiled its new brand, "Cars Commerce," consolidating various commercial names. They aim to make car buying and selling easier with a platform covering everything from before the sale to after it. This includes a marketplace, digital experience, trade & appraisal, and a media network designed to enhance industry connections and transparency.
Alex Vetter, CEO at CARS, said, "Cars Commerce brings consumers, OEMs, retailers, and lenders together to speed up operations, deliver more sales at greater profitability, and reduce a dealer's turn time by up to 20%. We have built a platform with a differentiated and powerful combination of audience, reviews and content, technology and data – and there's a word for it: Commerce.”
CARS’ 67.88% trailing-12-month gross profit margin is 38.8% higher than the 48.90% industry average. Likewise, its 17.76% trailing-12-month net income margin is 434.4% higher than the 3.32% industry average. Furthermore, the stock’s 28.01% trailing-12-month Return on Common Equity is 690.1% higher than the 3.54% industry average.
In the fiscal third quarter ended September 30, 2023, CARS’s total revenue increased 5.9% year-over-year to $174.33 million. Its operating income came in at $14.32 million. The company’s net income and earnings per share stood at $4.49 million and $0.07, compared to a net loss and loss per share of $2.94 million and $0.04 in the year-ago quarter.
For the quarter ending December 31, 2023, CARS’ EPS and revenue are expected to increase 56.5% and 6% year-over-year to $0.52 and $178.34 million, respectively. The stock has gained 38.7% year-to-date to close the last trading session at $19.10.
CARS’ strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
Within the Auto Dealers & Rentals industry, it is ranked #2 out of 21 stocks. It has a B grade for Value. Click here to see CARS’ Growth, Momentum, Stability, Sentiment, and Quality ratings.
Standard Motor Products, Inc. (SMP)
SMP manufactures and distributes automotive parts used in the maintenance, repair, and service of vehicles in the automotive aftermarket industry in the United States and internationally. It operates through the Engine Management Segment and the Temperature Control Segment.
On October 11, 2023, SMP expanded its Oil Filter Housing Kits, with recent additions for General Motors, Volvo, Chrysler, Dodge, Jeep, and RAM vehicles. The kits include factory-assembled components, matching OE performance, and durability. SMP offers a comprehensive line of Engine Oil Coolers, including recent additions for Nissan, Toyota, and Ford vehicles, with over 50 SKUs available.
SMP’s 12.75% trailing-12-month levered FCF margin is 146.3% higher than the 5.18% industry average. Likewise, its 10.76% trailing-12-month EBIT margin is 43.1% higher than the 7.52% industry average. Furthermore, the stock’s 12.80% trailing-12-month EBITDA margin is 13% higher than the 11.04% industry average.
For the fiscal third quarter (ended September 30, 2023), SMP’s net sales rose 1.3% over the prior-year quarter to $386.41 million. Its non-GAAP operating income increased 4.2% year-over-year to $34.98 million.
For the same period, the company’s non-GAAP earnings from continuing operations rose 7.8% year-over-year to $24.68 million, while its non-GAAP EPS from continuing operations came in at $1.11, representing an increase of 5.7% over the prior-year quarter.
Analysts expect SMP’s revenue for the quarter ending December 31, 2023, to increase 1.7% year-over-year to $313.51 million. Its EPS for the quarter ending March 31, 2024, is expected to increase 5.7% year-over-year to $0.65. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past month, the stock has gained 13.1% to close the last trading session at $35.70.
SMP’s POWR Ratings reflect solid prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
Within the Auto Parts industry, it is ranked #5 out of 61 stocks. It has a B grade for Growth, Value, Sentiment, and Quality. To see the other ratings of SMP for Momentum and Stability, click here.
What To Do Next?
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MZDAY shares were unchanged in premarket trading Monday. Year-to-date, MZDAY has gained 48.40%, versus a 20.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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