The automotive industry’s future looks promising, bolstered by robust demand for new vehicles, improving supply-chain conditions, and a swift transition toward EVs stimulated by beneficial government incentives. The integration of cutting-edge technologies further enhances the sector’s prospects.
Given the industry’s bright growth prospects, investors could invest in fundamentally sound auto stocks Isuzu Motors Limited (ISUZY), Mazda Motor Corporation (MZDAY), and Mercedes-Benz Group AG (MBGAF).
The automotive industry has navigated the hurdles of inflationary pressures, chip shortages, and supply chain disruptions and managed to maintain operations, cater to consumer demands, and strategically navigate pathways toward growth.
In October, new vehicle sales in the U.S. stood at 1,211,141 units, reflecting a 2% year-over-year rise. This expanding market is propelled by an increased appetite for EVs and the nation's recovering economy. Global auto sales in 2023 are anticipated to reach roughly 86.8 million units.
Third-quarter EV sales broke records, with the total number of battery-powered vehicles sold exceeding 300,000 units for the first time in the U.S. Cumulative EV sales from January through September crossed 873,000, alluding to a probable milestone of over a million sales by the end of the year – a first in history that's anticipated to be realized in November.
A key catalyst for this shift in consumer behavior is the tax incentives on EV purchases, unprecedentedly extending to second-hand purchases. The International Energy Agency’s latest projections indicate a 35% year-over-year increase in EV sales for 2023, reaching 14 million units. This growth highlights that EVs are poised to claim a larger chunk of the auto market, potentially rocketing to 18% by the end of 2023.
Moreover, the significant infusion of cutting-edge digital technologies like the Internet of Things (IoT), Artificial Intelligence (AI), and blockchain significantly transforms manufacturing processes within the automobile sector.
The global automotive market is expected to increase at a CAGR of 3% to $3.58 trillion by 2031.
Given the industry tailwinds, it's time to examine the fundamentals of the top three stocks to buy in the B-rated Auto & Vehicle Manufacturers industry, starting with the third in line.
Stock #3: Isuzu Motors Limited (ISUZY)
Headquartered in Yokohama-shi, Japan, ISUZY manufactures and sells commercial vehicles, light commercial vehicles, and diesel engines and components worldwide. Its products include heavy and medium-duty trucks, buses, and light-duty trucks; passenger pickup vehicles, pickup trucks, and SUVs; and marine and industrial engines. The company also supplies diesel engines to manufacturers in various fields.
ISUZY’s trailing-12-month asset turnover ratio of 1.08x is 8.6% higher than the industry average of 1x. Its trailing-12-month ROCE, ROTC, and ROTA of 12.40%, 8.10%, and 5.13% are 10.9%, 33.8%, and 33.3% higher than the industry averages of 11.19%, 6.05%, and 3.85%, respectively.
Over the past three and five years, its revenue grew at CAGRs of 20% and 9.4%, respectively, while its total assets grew at 15.2% and 8.5% CAGRs over the same periods.
ISUZY’s net sales for the first quarter that ended June 30, 2023, increased 12.7% year-over-year to ¥775.47 billion ($5.14 billion). Its operating income rose 25.3% over the prior-year quarter to ¥68.61 billion ($455.06 million). The company’s ordinary income increased 27.3% year-over-year to ¥74.89 billion ($496.71 million).
Also, its net income attributable to owners of parent rose 24.9% year-over-year to ¥45.04 billion ($298.75 million). In addition, its net income per share came in at ¥58.11, representing an increase of 24.9% year-over-year.
For the fiscal quarter ending December 2023, ISUZY’s revenue is expected to be $5.88 billion, while for the fiscal year ending March 2024, its revenue is expected to increase 136.3% year-over-year to $22.75 billion.
The stock has declined 2.9% intraday to close the last trading session at $11.20.
ISUZY’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to 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.
ISUZY also has an A grade for Value and a B for Growth, Stability, and Quality. It is ranked #6 out of 75 stocks in the B-rated Auto & Vehicle Manufacturers industry.
To see ISUZY’s grades for Momentum and Sentiment, click here.
Stock #2: 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.
On October 25, MZDAY unveiled the MAZDA ICONIC SP, a groundbreaking concept car, for the first time at the Japan Mobility Show 2023. Designed to adapt to the modern era and address automobile enthusiasts' passions, this compact sports car concept stands as a symbol of innovative engineering.
It is powered by a unique two-rotor rotary EV system that allows the car to remain compact and provides a high degree of layout flexibility. This technological achievement contributes significantly to the car's handling, courtesy of its low center of gravity, thus enhancing overall driving performance.
On November 7, MZDAY’s Board of Directors increased the interim dividend by ¥5 to ¥25 per share, payable to the shareholders on December 1, 2023. The year-end dividend remains unchanged, expected to be ¥50 per share. Its annualized dividend rate of $0.16 per share translates to a dividend yield of 2.94% on the current share price. Its four-year average yield is 2.62%.
MZDAY’s trailing-12-month asset turnover ratio of 1.34x is 34% higher than the industry average of 1x. Its trailing-12-month ROTC and ROTA of 6.25% and 4.71% are 3.2% and 22.3% higher than the industry averages of 6.05% and 3.85%, respectively.
Over the past three and five years, its revenue grew at CAGRs of 16.6% and 4.9%, respectively, while its total assets grew at 5.4% and 5% CAGRs over the same periods.
MZDAY’s net sales in the fiscal second quarter that ended September 30, 2023, increased 19.6% year-over-year to ¥1.23 trillion ($8.13 billion), while gross profit grew 19.7% from the year-ago quarter to ¥268.25 billion ($1.78 billion).
For the same quarter, its operating income stood at ¥99.59 billion ($660.54 million), up 33.2% year-over-year, while net income attributable to owners of the parent stood at ¥70.89 billion ($470.20 million), up marginally year-over-year.
Moreover, as of September 30, 2023, MZDAY’s total current assets stood at ¥1.86 trillion ($12.34 billion), compared to ¥1.72 trillion ($11.44 billion) as of March 31, 2023.
Street expects MZDAY’s revenue for the fiscal third quarter ending December 2023 to be $7.81 billion, while for the fiscal year ending March 2024, revenue is expected to increase 40.4% year-over-year to $31.05 billion.
The stock has gained 45.7% year-to-date to close the last trading session at $5.47. Over the past year, it gained 54.4%.
MZDAY’s POWR Ratings reflect a positive outlook. The stock has an overall A rating, which indicates a Strong Buy in our proprietary rating system.
MZDAY has an A grade for Growth and Value and a B for Quality. Within the same industry, it is ranked #4.
Click here for MZDAY’s additional POWR Ratings (Momentum, Stability, and Sentiment).
Stock #1: Mercedes-Benz Group AG (MBGAF)
Headquartered in Stuttgart, Germany, MBGAF develops, manufactures, and sells premium and luxury cars and vans. The segments include MBGAF Cars; MBGAF Vans; and Daimler Financial Services.
Its annualized dividend rate of $5.72 per share translates to a dividend yield of 9.31% on the current share price. Its four-year average yield is 5.08%. MBGAF’s dividend payments have grown at CAGRs of 24.2% and 14.8% over the past three and five years, respectively.
MBGAF’s trailing-12-month cash from operations of $15.13 billion is significantly higher than the industry average of $238.90 million. Its trailing-12-month net income and EBIT margins of 9.82% and 12.20% are 132.2% and 65.4% higher than the industry averages of 4.23% and 7.38%, respectively.
Over the past three and five years, its EBIT grew at CAGRs of 185.5% and 12.2%, respectively, while its EBITDA grew at 46.5% and 8.1% CAGRs over the same periods.
In the fiscal third quarter that ended September 30, 2023, MBGAF’s revenue stood at €37.20 billion ($39.77 billion), while gross profit came at €8.03 billion ($8.59 billion).
For the same quarter, net profit attributable to shareholders of MBGAF and earnings per share for profit attributable to shareholders of MBGAF stood at €3.64 billion ($3.89 billion) and €3.44, respectively.
Street expects MBGAF’s revenue for the fiscal year ending December 2023 to increase 2.1% year-over-year to $163.72 billion. Its EPS is expected to be $14.02 for the same period.
The stock has gained 1.1% intraday to close the last trading session at $61.46. Over the past year, it gained marginally.
MBGAF’s robust outlook is reflected in its POWR Ratings. The stock has an overall rating of A, translating to Strong Buy in our proprietary rating system.
MBGAF has a B grade for Growth, Value, Momentum, Stability, and Quality. Within the same industry, it is ranked #3.
Beyond what we’ve stated above, we have also rated the stock for Sentiment. Get all ratings of MBGAF here.
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MBGAF shares were unchanged in premarket trading Thursday. Year-to-date, MBGAF has declined -6.02%, versus a 15.60% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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