The automotive industry is experiencing a paradigm shift, elevating vehicles beyond transportation to interconnected devices. Manufacturers are actively integrating advanced software suites and facilitating seamless connectivity with smart devices. This digital evolution is enhancing the overall automotive landscape.
To capitalize on the industry’s growth prospects, it could be wise to add fundamentally sound auto stocks Li Auto Inc. (LI), The Goodyear Tire And Rubber Company (GT), and Sonic Automotive, Inc. (SAH) to your portfolio for potential gains. Let’s understand this in detail.
Cutting-edge technologies, such as Artificial Intelligence (AI), Machine Learning (ML), and robotics, are transforming both the manufacturing and utilization of vehicles. They are reshaping automotive processes, opening substantial opportunities for innovation and the development of novel automotive applications.
Concurrently, the Internet of Things (IoT) is also playing a key role in improving the driving experience. Cars are becoming more intelligent and connected than ever thanks to sophisticated infotainment systems and real-time traffic data, which bodes well for the industry's future growth.
An unavoidable shift to Electric Vehicles (EVs) is also underway. In the coming decade, EV sales are anticipated to sharply outpace hybrid vehicle sales. This transformation is evident as more automakers prioritize EV production, consumer demand rises, and a broader selection of non-luxury EVs enhances affordability.
That said, in October, U.S. new vehicle sales soared to 1,211,141 units, marking a 2% year-over-year increase. This upswing is attributed to heightened demand for EVs and the nation's economic rebound. Projections for 2023 anticipate a global auto sales surge to around 86.8 million units, emphasizing the industry's sustained growth.
In addition, in the fiscal 2023 third quarter, EV sales in the United States exceeded 300,000 units, a historic milestone. Cumulative EV sales through September surpassed 873,000, pointing toward surpassing 1 million units for the first time, a milestone expected to be achieved in November.
According to a report by Business Research Insights, the global automotive market is expected to grow at a CAGR of 3% to touch $3.58 trillion by 2031.
In light of these encouraging trends, let us dive into the fundamentals of these three auto stocks, beginning with number three.
Li Auto Inc. (LI)
Headquartered in Beijing, China, LI designs, develops, manufactures, and sells new energy vehicles, including smart electric models such as Li ONE and Li L series. It provides comprehensive services, managing sales, after-sales, technology development, corporate management, and procuring manufacturing equipment.
On November 17, LI revealed its high-tech flagship family MPV, Li MEGA, at the 21st Guangzhou International Automobile Exhibition. The preview highlighted its excellence in safety, BEV technologies, interior space, drivability, and design.
Officially launching in December 2023, Li MEGA garnered over 10,000 orders within two hours, showcasing its strong appeal to families. This overwhelming demand could position LI for substantial gains, boosting revenue and market presence as Li MEGA emerges as a sought-after choice among consumers.
For the third quarter that ended September 30, 2023, LI’s total revenues increased 271.2% year-over-year to $4.75 billion. Its non-GAAP income from operations stood at $410.33 million, increasing significantly from the prior-year quarter's non-GAAP loss from operations.
Moreover, the company's non-GAAP net income and non-GAAP net earnings per share attributable to ordinary shareholders were $475.23 million and $0.23, respectively, significantly higher than the non-GAAP net loss and non-GAAP net loss per share attributable to ordinary shareholders in the last year’s quarter.
The consensus revenue estimate of $5.29 billion for the fiscal fourth quarter ending December 2023 reflects a 108.1% year-over-year improvement. Likewise, the consensus EPS estimate of $0.42 for the current quarter indicates a 210% rise from the prior year. Moreover, the company surpassed the consensus revenue estimates in three of four trailing quarters.
Shares of LI have gained 30.8% over the past month and 140.8% over the past year to close the last trading session at $42.30. It is trading higher than its 50-day moving average of $36.48 and 200-day moving average of $32.26.
LI’s sound fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
LI has an A grade for Growth and a B for Sentiment and Quality. It has ranked #25 out of 52 stocks within the B-rated Auto & Vehicle Manufacturers industry.
In addition to the POWR Ratings I’ve just highlighted, you can see LI’s ratings for Value, Momentum, and Stability here.
The Goodyear Tire And Rubber Company (GT)
GT develops, manufactures, distributes, and sells tires and related products and services. The company extends its reach by offering chemical products and diverse automotive and commercial repair services. It operates approximately 950 retail outlets.
On November 15, GT introduced "Goodyear Forward," a transformation plan designed to optimize its portfolio, achieve significant margin expansion, and reduce leverage for enduring shareholder value. This move aims to fortify GT's leadership, drive global profitable growth, and create lasting shareholder value, laying the foundation for success in the next 125 years.
On September 25, GT launched the latest addition to the Wrangler® family: the Wrangler® DuraTrac® RT, an all-season tire engineered for on- and off-road use with DuPont™ Kevlar® for tread protection and a durable three-ply sidewall. Tailored for light trucks and SUVs, it enhances resistance to punctures, abrasions, and cuts in rugged conditions.
The strategic product launch is poised to bolster GT's growth by expanding its market presence, catering to diverse consumer needs, and capitalizing on the tire's robust features to drive increased sales and revenue, ultimately enhancing the company's overall performance and market position.
For the third quarter that ended September 30, 2023, GT registered net sales of $5.14 billion. In addition, as of September 30, 2023, the company’s current assets stood at $8.68 billion, compared to $8.67 billion as of December 31, 2022. Moreover, total assets amounted to $22.50 billion, up from $22.43 billion as of December 31, 2022.
Analysts expect GT’s revenue to grow 2.9% year-over-year to $20.91 billion for the fiscal year ending December 2024. Similarly, the company’s EPS for the next year is estimated to come in at $1.39, indicating a significant year-over-year improvement.
The stock has gained 13.9% over the past months and 39.5% year-to-date, closing the last trading session at $14.21. It is trading higher than its 50-day moving average of $12.52 and 200-day moving average of $12.55.
GT’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
GT has a B grade for Value. It is ranked #35 within the A-rated 61-stock Auto Parts industry.
Click here to access the additional GT ratings (Growth, Momentum, Stability, Sentiment, and Quality).
Sonic Automotive, Inc. (SAH)
SAH is an automotive retailer. Its Franchised Dealerships segment delivers comprehensive sales and services. The EchoPark segment focuses on selling used cars and light trucks while facilitating third-party F&I product sales, while the Powersports arm caters to guests with sales of new and used Powersports vehicles.
On March 14, SAH unveiled the opening of Audi Downtown Nashville, an advanced experience center in downtown Nashville. The facility, meticulously designed to revolutionize Audi ownership, offers a new approach for enthusiasts to explore and maintain their vehicles, signaling SAH's commitment to enhancing the customer experience.
Enabling guests to schedule VIP test drives, customize their ideal Audi through virtual consultations, and conveniently pick up ordered vehicles, this initiative could elevate customer satisfaction and position SAH to capitalize on increased customer engagement, fostering financial growth and long-term brand loyalty.
On February 15, SAH announced the acquisition of Black Hills Harley-Davidson, a globally renowned Harley-Davidson Inc. (HOG) dealership situated in Rapid City, South Dakota, and integral to the Sturgis Motorcycle Rally, the world's largest motorcycle gathering.
The strategic move aligns with SAH's dedication to its burgeoning powersports segment, unlocking additional avenues for growth through partnerships with premier powersports brands such as Harley-Davidson, Can-Am, Sea-Doo, Polaris, Kawasaki, Suzuki, Ducati, BMW, Honda, Indian Motorcycle, and Yamaha.
SAH’s total revenues increased 5.7% year-over-year to $3.64 billion for the third quarter that ended September 30, 2023. Its gross profit marginally grew from the year-ago value to $582.20 million.
Furthermore, as of September 30, 2023, the company’s current assets came in at $2.24 billion, compared to $2.21 billion as of December 31, 2022. Its total assets stood at $5.05 billion, compared to $4.98 billion as of December 31, 2022.
The consensus revenue estimate of $3.55 billion for the fiscal 2024 first quarter ending March 2024 reflects a 1.7% year-over-year improvement. Similarly, the consensus EPS estimate of $1.46 for the next quarter exhibits a 9.8% growth from the previous year. Also, the company surpassed the consensus revenue and EPS estimates in three of the trailing four quarters.
SAH has gained 14.7% over the past month and 29% over the past six months, closing the last trading session at $52.70. It is trading higher than its 50-day moving average of $48.40 and 200-day moving average of $49.74.
SAH’s solid outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
SAH has a B grade for Growth and Value. It is ranked #8 out of 21 stocks within the B-rated Auto Dealers & Rentals industry.
Click here to access additional SAH ratings for Momentum, Stability, Sentiment, and Quality.
What To Do Next?
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LI shares were trading at $40.78 per share on Tuesday morning, down $1.52 (-3.59%). Year-to-date, LI has gained 99.90%, versus a 19.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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