3 Top-Rated Automakers to Buy... And One to Avoid

Despite lingering logistic disruptions and sky-high prices, U.S. vehicle sales rose 2.5% month-over-month to 13.40 million units in July. Sales of light trucks and passenger vehicles also improved in July, boding well for automakers.

Moreover, according to Mordor Intelligence, the North America automotive market is expected to grow at a CAGR of more than 6.6% from 2022 to 2027.

On the other hand, given soaring fuel prices, a rising portion of the American population is opting for Electric Vehicles (EVs). According to AAA’s latest consumer survey, one-quarter of Americans opined that they will likely buy an EV for their next purchase.

Given the backdrop, it could be wise to consider buying shares of quality automakers Stellantis N.V. (STLA), Honda Motor Company, Ltd. (HMC), and Subaru Corporation (FUJHY). However, Mullen Automotive Inc. (MULN) is best avoided now, considering its bleak fundamentals.

Stocks to Buy:

Stellantis N.V.(STLA)

Headquartered in Hoofddorp, the Netherlands, STLA designs, engineers, manufactures, distributes, and sells automobiles and light commercial vehicles, engines, transmission systems, metallurgical products, and production systems worldwide.

On August 1, 2022, STLA announced it would invest $99 million in three North American plants to produce a new four-cylinder turbocharged engine for hybrid-electric vehicle (HEV) applications. This will be STLA’s first HEV set-up in North America, and the rising demand for EVs could help the company reap solid benefits in the near term.

STLA’s net revenues came in at €88 billion ($88.12 billion) for the first half ended June 30, 2022, up 21.2% year-over-year. Its net profit increased 37.2% year-over-year to €7.96 billion ($7.97 billion). Moreover, the company’s adjusted operating income increased 46.6% year-over-year to €12.37 billion ($12.39 billion).

Analysts expect STLA’s revenue to increase 2.9% year-over-year to $176.98 billion in 2022. Its EPS is estimated to increase 20.1% per annum for the next five years. It surpassed EPS estimates in three of the trailing four quarters. Over the past month, the stock has gained 13.3% to close the last trading session at $14.53.

STLA’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

STLA has an A grade in Value and Sentiment and a B in Quality and Stability. Within the Auto & Vehicle Manufacturers industry, it is ranked #1 among 66 stocks. Click here to see the additional POWR Ratings for Momentum and Growth for STLA.

Honda Motor Company, Ltd. (HMC)

Headquartered in Tokyo, Japan, HMC develops, manufactures, and distributes motorcycles, automobiles, power products, and other products in Japan, North America, Europe, Asia, and internationally. Its four segments are Motorcycle Business; Automobile Business; Financial Services Business; and Life Creation and Other Businesses.

On July 14, 2022, American HMC agreed to a multi-year agreement with Kyndryl Holdings, Inc. (KD), the world’s largest IT infrastructure services provider. This partnership aims to expand KD’s work while supporting American HMC's infrastructure transformation. On the other hand, the collaboration will help American HMC to present fresh innovations to its customers.

Adam Sparks, Assistant Vice President of Enterprise IT Services at American HMC, said, “Kyndryl will contribute to efficiencies and competitiveness across all North America processes, which will help us establish new connected products and services.”

Also, on April 5, 2022, HMC and General Motors Company (GM) announced their collaboration to co-develop a series of affordable EVs using next-generation Ultium battery technology, which is expected to garner significant consumer interest.

HCM’s sales revenue came in at ¥3.83 trillion ($27.96 billion) for the first quarter ended June 30, 2022, up 6.9% year-over-year. Moreover, the company’s motorcycle sales came in at 4.25 million units, up 9.6% year-over-year. Also, its cash and cash equivalents came in at ¥3.63 trillion ($26.50 billion), up 45% year-over-year.

Street expects HMC’s revenue to increase 3.6% year-over-year to $31.12 billion for the quarter ended September 2022. Its EPS is expected to increase 13.2% per annum for the next five years. Over the past three months, the stock has gained 8.2% to close the last trading session at $27.05.

HMC's overall A rating equates to a Strong Buy in our POWR Ratings system. It has an A grade for Value and a B for Quality and Stability. It is ranked #3 in the same industry. Beyond what is stated above, we’ve also rated HMC for Momentum, Sentiment, and Growth. Get all the HMC ratings here.

Subaru Corporation (FUJHY)

Headquartered in Tokyo, Japan, FUJHY manufactures and sells automobiles and aerospace products worldwide. Its three segments are Automotive Business Unit; Aerospace Company; and Other Businesses.

FUJHY’s revenue came in at ¥834.10 billion ($6.09 billion) for the first quarter ended June 30, 2022, up 31.3% year-over-year. Its profit increased 44.9% year-over-year to ¥27.28 billion ($199.14 million). Moreover, the company’s EPS came in at ¥35.48, up 47% year-over-year.

FUJHY’s revenue is expected to increase 8.8% year-over-year to $6.78 billion for the quarter ended September 2022. Its EPS is expected to increase 54.9% per annum for the next five years. Over the past three months, the stock has gained 10.7% to close the last trading session at $9.01.

FUJHY has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has a B grade for Growth, Value, Quality, and Stability. It is ranked #5 in the same industry. We have also rated FUJHY for Momentum and Sentiment. Get all the FUJHY ratings here.

Stock to Avoid:

Mullen Automotive Inc. (MULN)

MULN is an electric vehicle manufacturer and distributor. Additionally, it runs the digital platform CarHub, which uses AI to give a user-friendly way to buy, sell, and own a car. It also sells battery technology and emergency point-of-care solutions.

On August 1, 2022, MULN launched a new Automotive Development Center in California. However, it might take some time for MULN to benefit from this.

MULN’s loss from operations came in at $18.22 million for the third quarter ended June 30, 2022, up 184.5% year-over-year. Its net loss came in at $59.47 million, up 289.9% year-over-year. In addition, its general and administrative expenses came in at $10.90 million, up 121.2% year-over-year.

Over the past year, the stock has lost 92.4% to close the last trading session at $0.75.

MULN has an overall F grade, equating to a Strong Sell in our POWR Ratings system. Also, the stock has an F for Value and Stability and a D for Sentiment and Quality. Click here to access the additional POWR Rating for MULN (Growth and Momentum). MULN is ranked #60 in the Auto & Vehicle Manufacturers industry.

STLA shares were trading at $13.78 per share on Monday afternoon, down $0.75 (-5.16%). Year-to-date, STLA has declined -26.55%, versus a -11.97% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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