The auto industry is fueled by rising demand for personal and commercial vehicles and the integration of cutting-edge technologies in this sector. Given the industry’s steady growth prospects, investors could consider quality auto stocks Rolls-Royce Holdings plc (RYCEY), AB Volvo (publ) (VLVLY), and Mercedes-Benz Group AG (MBGAF) for steady gains this month.
The automotive market is expected to keep growing in the coming years because of the rising demand for personal and commercial vehicles, the rise of new technologies like electric and self-driving cars, and the growing awareness of consumer safety and environmental issues.
The global automotive market is expected to grow to $28.70 billion by 2030 at a CAGR of 4.5%.
Moreover, 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 recovering economy. Global auto sales in 2023 are anticipated to reach roughly 86.8 million units.
Furthermore, the automotive artificial intelligence market is thriving due to the rising demand for enhanced user experience and the growing adoption of ADAS technology by OEMs. Advancements in machine learning algorithms and computer vision further drive AI adoption in the automotive industry.
The global automotive artificial intelligence (AI) market is expected to be worth $7 billion by 2027, with a CAGR of 24.1%.
With these favorable trends in mind, let's delve into the fundamentals of the three best Auto & Vehicle Manufacturers stocks, beginning with the third choice.
Stock #3: Rolls-Royce Holdings plc (RYCEY)
Headquartered in London, the United Kingdom, RYCEY operates as an industrial technology company in the United Kingdom and internationally. The company operates in four segments, Civil Aerospace; Defense; Power Systems; and New Markets.
RYCEY’s trailing-12-month ROTC of 61.08% is 788.6% higher than the industry average of 6.87%, while its trailing-12-month ROTA of 5.09% is 3% higher than the industry average of 4.94%.
During the first half year ended June 30, 2023, RYCEY’s revenue increased 34.3% year-over-year to £7.52 billion ($8.17 billion). The company’s profit for the period came in at £1.22 billion ($1.32 billion), compared to a loss of £1.56 billion ($1.56 billion) in the previous-year quarter. Also, its earnings per ordinary share attributable to ordinary shareholders came in at £14.67p compared to negative £19.29p in the previous-year quarter.
Street expects RYCEY’s revenue to increase 18% year-over-year to $18.01 billion for the year ending December 2023. Its EPS is expected to grow at 314% year-over-year to $0.10 for the same year.
Over the past year, the stock has gained 179.3% to close the last trading session at $2.96.
RYCEY’s POWR Ratings reflect its promising outlook. 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, with each factor weighted to an optimal degree.
The stock has a B grade for Growth, Value, Stability, Momentum, and Sentiment. It is ranked #9 out of 52 stocks in the B-rated Auto & Vehicle Manufacturers industry.
Click here to see the other ratings of RYCEY (Quality).
Stock #2: AB Volvo (publ) (VLVLY)
Headquartered in Gothenburg, Sweden, VLVLY manufactures and sells trucks, buses, construction equipment, and marine and industrial engines in Europe, North America, South America, Asia, Africa, and Oceania.
On October 6, 2023, VLVLY and Renault Group joined forces to address the growing needs of decarbonized and efficient logistics by creating a new company managing the development of an all-new generation of electrified vans. The two groups look forward to CMA CGM joining the new company. Renault and VLVLY would continue to seek additional investment and business partners.
VLVLY’s trailing-12-month EBIT margin of 11.72% is 19.5% higher than the industry average of 9.81%. Its trailing-12-month asset turnover ratio of 0.83x is 4.3% higher than the industry average of 0.79x.
VLVLY pays $0.68 annually as dividends. This translates to a yield of 3.16% at the current market price.
VLVLY’s net sales increased 15.2% year-over-year to SEK132.41 billion ($12.53 billion) in the fiscal third quarter that ended September 30, 2023. Income for the period grew 62.2% from the prior-year quarter to SEK14.10 billion ($1.33 billion). The company’s EPS improved 63.4% from the year-ago quarter to SEK6.93.
The consensus revenue of $49.04 billion for the fiscal year ending December 2023 represents a 6.3% increase year-over-year. Its EPS is expected to grow 58.1% year-over-year to $2.73 for the same year. Also, the company topped the consensus revenue estimates in three of the four trailing quarters.
VLVLY’s shares have gained 24.8% over the past year to close the last trading session at $21.99.
VLVLY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
It has an A grade for Stability and a B in Quality and Growth. Within the same industry, it is ranked #6.
Beyond what is stated above, we’ve also rated VLVLY for Momentum, Value and Sentiment. Get all VLVLY ratings here.
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 9.06% on the current share price. Its four-year average yield is 5.09%. 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 net income and EBIT margins of 9.82% and 12.20% are 123.5% and 64.8% higher than the industry averages of 4.40% and 7.40%, respectively.
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 1.5% year-over-year to $162.85 billion. Its EPS is expected to be $14.02 for the same period.
The stock gained marginally intraday to close the last trading session at $63.66.
It’s no surprise that MBGAF has an overall rating of A, which equates 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 #4.
In addition to the POWR Ratings we’ve stated above, we also have MBGAF’s ratings for Momentum and Stability. Get all MBGAF ratings here.
What To Do Next?
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MBGAF shares were trading at $63.27 per share on Thursday morning, down $0.39 (-0.61%). Year-to-date, MBGAF has declined -3.26%, versus a 18.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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