Despite macroeconomic concerns, auto sales in the United States will likely grow due to pent-up demand, improved inventories and attractive financing terms. Also, technological improvements in marketplaces and products are attracting more buyers.
Given the industry’s growth prospects, investors could consider buying fundamentally sound auto stocks Ferrari N.V. (RACE), Isuzu Motors Limited (ISUZY) and Suzuki Motor Corporation (SZKMY) for solid returns.
Before diving deeper into their fundamentals, let’s discuss what’s happening in the auto industry.
Despite several challenges, such as rising inflation and supply chain interruptions, the automobile industry has shown remarkable resilience. Collaborations and partnerships with tech companies have also driven the industry's growth and positioned it for future success.
According to Business Research Insights, the global automotive market will increase at a CAGR of 3% to $3.27 trillion by 2028. The shift toward electric and driverless vehicles is expected to propel the automobile sector forward in the next few years.
AI is transforming the auto industry by enhancing safety, efficiency, and the driving experience. Generative AI drives innovation by enabling designers to construct more aerodynamic, fuel-efficient automobiles, optimize manufacturing processes, and improve driving assistance features like autonomous driving, all of which lead to higher productivity and cost savings.
The global automotive AI market is expected to be worth $7 billion by 2027, growing at a CAGR of 24.1%.
Considering these conducive trends, let’s look at the fundamentals of the three Auto & Vehicle Manufacturers stock picks, beginning with number 3.
Stock #3: Ferrari N.V. (RACE)
Headquartered in Maranello, Italy, RACE designs, engineers, manufactures, and sells luxury performance sports cars worldwide. It also provides spare parts, engines, after-sale services, repair, maintenance, and restoration services for cars and licenses its Ferrari brand to various producers and retailers of luxury and lifestyle goods.
RACE’s trailing-12-month net income margin of 20.27% is 361.1% higher than the 4.40% industry average. Its trailing-12-month ROCE of 45.01% is 309.4% higher than the 10.99% industry average.
For the fiscal third quarter that ended September 30, 2023, RACE’s net revenues increased 23.5% year-over-year to €1.54 billion ($1.68 billion), while its adjusted EBIT grew 41.5% from the year-ago quarter to €423 million ($459.96 million).
Also, the company’s adjusted net income and adjusted EPS stood at €332 million ($361 million) and €1.82, up 45.6% and 48% year-over-year, respectively.
Street expects RACE’s revenue to increase 14.5% year-over-year to $6.36 billion for the year ending December 2023. Its EPS is expected to grow 29.5% year-over-year to $7.20 for the same period. It has surpassed EPS estimates in all four trailing quarters. Over the past year, the stock has gained 65.5% to close the last trading session at $354.01.
RACE’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
RACE also has an A grade for Sentiment and Quality and a B for Growth and Stability. It is ranked #15 out of 52 stocks in the B-rated Auto & Vehicle Manufacturers industry. Click here to see the additional POWR Ratings for Value and Momentum for RACE.
Stock #2: 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 forward EV/Sales multiple of 0.52 is 54.1% lower than the industry average of 1.14. Its forward Price/Sales multiple of 0.43% is 47.6% lower than the industry average of 0.82.
ISUZY’s trailing-12-month Capex/Sales of 3.54% is 11.6% higher than the 3.17% industry average. Its trailing-12-month asset turnover ratio of 1.08x is 8.1% higher than the 1x industry average.
ISUZY’s net sales for the six months ended September 30, 2023, increased 9.7% year-over-year to ¥1.64 trillion ($10.95 billion). Its operating income rose 27.6% over the prior-year quarter to ¥143.20 billion ($957.52 million).
Also, its net income attributable to owners of parent rose 20.7% year-over-year to ¥88.11 billion ($589.16 million). In addition, its net income per share came in at ¥113.66, representing an increase of 19.5% year-over-year.
The consensus revenue estimate of 22.82 billion for the year ending March 2024 represents a 136.9% increase year-over-year. ISUZY’s shares have gained 9% year-to-date to close the last trading session at $12.65.
ISUZY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #10 in the same industry. It has a B grade for Value, Stability and Quality. Click here to see additional ISUZY ratings for Growth, Sentiment and Momentum.
Stock #1: Suzuki Motor Corporation (SZKMY)
Headquartered in Hamamatsu, Japan, SZKMY manufactures and markets automobiles, motorcycles, and marine products in Japan, the rest of Asia, Europe, North America, and internationally. It offers mini-vehicles, sub-compact vehicles, standard-sized vehicles, outboard motors, motorized wheelchairs, and electro-senior vehicles. The company is also involved in solar power generation and logistics business.
SZKMY’s forward EV/Sales of 0.64x is 43.9% lower than the industry average of 1.14x. Its forward EV/EBIT of 7.57x is 42.8% lower than the industry average of 13.25x.
SZKMY’s trailing-12-month Capex/Sales of 5.45% is 72% higher than the 3.17% industry average. Its trailing-12-month ROTA of 4.68% is 21.4% higher than the 3.86% industry average.
For the six months ended September 30, 2023, SZKMY’s net sales increased 15.6% year-over-year to ¥2.56 trillion ($17.15 billion). Its operating profit rose 39.6% over the prior-year quarter to ¥229.46 billion ($1.53 billion).
Also, its profit attributable to owners of parent rose 12.4% year-over-year to ¥129.35 billion ($864.93 million). In addition, its EPS came in at ¥266.83, representing an increase of 12.6% year-over-year.
Analysts expect SZKMY’s revenue to increase 112% year-over-year to 34.55 billion for the year ending March 2024. Shares of SZKMY have gained 30.5% year-to-date to close the last trading session at $167.77.
It’s no surprise that SZKMY has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Stability and a B for Growth, Value and Quality. It is ranked #3 in the Auto & Vehicle Manufacturers industry.
Beyond what is stated above, we’ve also rated SZKMY for Momentum and Sentiment. Get all SZKMY ratings here.
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RACE shares were trading at $357.87 per share on Friday morning, up $3.86 (+1.09%). Year-to-date, RACE has gained 67.06%, versus a 18.90% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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