The auto industry is thriving due to increased consumer demand for cars, rising disposable incomes, advancements in automobile technology and features, government incentives, the use of advanced auto components, and improved global supply chains, which result in higher auto parts sales.
Also, the industry looks set to benefit from the interest rate cuts expected this year, which will help make borrowing cheaper. Given this backdrop, investors could consider buying fundamentally strong auto stocks such as Isuzu Motors Limited (ISUZY), The Goodyear Tire & Rubber Company (GT), and Motorcar Parts of America, Inc. (MPAA). These stocks are trading under $20.
Despite facing challenges like supply chain constraints, high prices, and high interest rates, the auto industry looks set to register strong growth. Flexible financing, brand discounts, and higher electric vehicle sales boost the sector’s growth. In March, the U.S. saw a 5.1% increase in new vehicle sales, hitting 1.46 million units compared to March 2023.
According to Jeff Schuster, VP of Research, Automotive, at GlobalData, the global light vehicle sales in the first quarter rose 4% year-over-year to 20.7 million units. He believes global light vehicle sales will increase 3% year-over-year to 89.2 million units in 2024. The global automotive industry is expected to grow at a CAGR of 6.8%, reaching $6.86 trillion by 2033.
Meanwhile, high vehicle prices may prolong car ownership, increasing demand for auto parts due to older cars needing more maintenance. Simultaneously, the use of advanced auto tech, such as Advanced Driver Assistance Systems (ADAS), IoT components, and infotainment systems in newer models is rising, thus boosting demand for auto parts.
Statista forecasts that revenues from automotive parts, accessories, and tire stores in the U.S. will reach $92.3 billion in 2024.
Considering these conducive trends, let’s analyze the fundamental aspects of the three auto stocks mentioned above.
Isuzu Motors Limited (ISUZY)
Headquartered in Tokyo, Japan, ISUZY manufactures and sells commercial vehicles, light commercial vehicles, and diesel engines and components worldwide. Its products include heavy-duty and medium-duty trucks, buses, light-duty trucks, passenger pickup vehicles, pickup trucks, SUVs, and marine and industrial engines.
On March 19, 2024, ISUZY introduced its first-ever D-MAX BEV pickup truck. It will launch in Europe by 2025 and later in Australia, Thailand, and other global markets. The truck features a full-time 4WD system with e-Axles, a remarkable towing capacity, and a commitment to carbon neutrality. It aims to meet diverse commercial and passenger vehicle needs while improving lives.
On March 6, 2024, ISUZY and TIER IV partnered to develop Level 4 autonomous driving systems for route buses. ISUZY invested ¥6 billion ($38.76 million) in TIER IV to accelerate technology development, using TIER IV's open-source autonomous driving software knowledge and ISUZY’s expertise in the route bus sector.
This partnership aims to enhance public transportation safety, efficiency, and convenience. By combining their strengths, ISUZY, and TIER IV are working towards revolutionizing the future of autonomous driving in route buses.
In terms of forward EV/Sales, ISUZY’s 0.55x is 54.1% lower than the 1.19x industry average. Its 4.91x forward EV/EBITDA is 47.8% lower than the 9.40x industry average. Likewise, its 0.42x forward Price/Sales is 51.6% lower than the 0.88x industry average.
ISUZY’s net sales for the third quarter, which ended on December 31, 2023, increased 8.4% year-over-year to ¥2.54 trillion ($16.61 billion). Its operating income rose 28.1% over the prior-year quarter to ¥253.56 billion ($1.66 billion).
Additionally, the company's net income attributable to owners of the parent increased 26.7% year-over-year to ¥159.42 billion ($1.04 billion). Its net income per share came in at ¥206.31, representing a 27.1% year-over-year increase.
Analysts expect ISUZY’s revenue for fiscal 2024 to increase 125.3% year-over-year to $21.69 billion. Over the past six months, the stock has gained 8.3% to close the last trading session at $12.63.
ISUZY’s strong fundamentals are reflected in its POWR Ratings. It 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.
It is ranked #6 out of 51 stocks in the Auto & Vehicle Manufacturers industry. It has an A grade for Value and a B for Stability and Quality. To see ISUZY’s Growth, Momentum, and Sentiment ratings, click here.
The Goodyear Tire & Rubber Company (GT)
GT and its subsidiaries develop, manufacture, distribute, and sell tires and related products and services worldwide. They offer various lines of rubber tires under the Goodyear, Cooper, Dunlop, Kelly, Mastercraft, Roadmaster, Debica, Sava, Fulda, Mickey Thompson, Avon, and Remington brands, as well as various house brands and private-label brands.
In terms of forward non-GAAP PEG, GT’s 0.08x is 95.1% lower than the 1.54x industry average. Its 0.57x forward EV/Sales is 52.5% lower than the 1.19x industry average. Likewise, its 0.17x forward Price/Sales is 80.3% lower than the 0.88x industry average.
During the fourth quarter that ended December 31, 2023, GT’s net sales stood at $5.12 billion. Its total segment operating income rose 62.3% from the year-ago value to $383 million. In addition, its non-GAAP free cash flows increased 16.5% year-over-year to $993 million.
Street expects GT’s EPS for the quarter ending September 30, 2024, to increase 16.7% year-over-year to $0.42. Likewise, its revenue and EPS for the year ending December 31, 2024, are expected to increase marginally and 490.4% year-over-year to $20.12 billion and $1.24, respectively. Over the past year, the stock has gained 12.1% to close the last trading session at $12.24.
GT’s POWR Ratings reflect its positive outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system.
In the A-rated Auto Parts industry, it is ranked #29 out of 61 stocks. It has a B grade for Growth and Value. Click here to see GT’s Momentum, Stability, Sentiment, and Quality ratings.
Motorcar Parts of America, Inc. (MPAA)
MPAA manufactures, remanufactures, and distributes heavy-duty truck, industrial, marine, and agricultural application replacement parts. The company offers rotating electrical products, wheel hub assemblies and bearings, and brake-related products.
On February 12, 2024, MPAA announced the introduction of over 20 new part numbers for its Quality-Built brake pad and rotor program, expanding coverage to seven million additional vehicles. The new parts are available through QB, Quality-Built, and Quality-Built Black Series brands, reflecting MPAA's commitment to meet demand in the professional installer market.
In terms of forward non-GAAP P/E, MPAA’s 14.10x is 8% lower than the 15.33x industry average. Its 3.67x forward EV/EBITDA is 60.9% lower than the 9.40x industry average. Likewise, its 3.49x forward EV/EBIT is 74.7% lower than the 13.80x industry average.
For the fiscal third quarter ending December 31, 2023, MPAA’s net sales amounted to $171.86 million, up 13.2% year-over-year. The company’s gross profit rose 43.1% year-over-year to $30.04 million. Moreover, its operating income rose 192.5% over the prior-year quarter to $9.52 million.
For the quarter ended March 31, 2024, MPAA’s revenue is expected to increase 2% year-over-year to $198.60 million. Its EPS for the quarter ending June 30, 2024, is expected to increase 72.8% year-over-year to $0.07. Over the past year, the stock has gained 25.3% to close the last trading session at $5.64.
MPAA’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value and Sentiment. Within the Auto Parts industry, it is ranked #10. Beyond the grades mentioned above, we have also rated MPAA for Momentum, Stability, and Quality. Get all ratings here.
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ISUZY shares were trading at $12.63 per share on Monday morning, up $0.12 (+0.96%). Year-to-date, ISUZY has gained 2.27%, versus a 8.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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