The U.S. auto industry regained stability in 2023 after struggling with pandemic-led challenges. The return to normalcy is expected to continue in 2024, driven by a consistent surge in auto sales.
However, not all auto stocks are well-positioned to capitalize on the favorable industry trends. I think waiting for a better entry point in Ford Motor Company (F) is prudent. However, Porsche Automobil Holding SE (POAHY) is best avoided for now.
Before delving deeper into the fundamentals of these stocks to understand why they may not be the right picks now, let’s discuss what’s shaping the industry’s prospects.
In 2024, the auto industry will likely thrive with lower interest rates, reduced inflation, and better inventory. This, coupled with the ongoing shift to electric vehicles (EVs) and quick tech integration, should contribute to the industry's expansion.
Last year was the industry’s best year since the pandemic, with new vehicle sales hitting approximately 15.5 million units. EVs, including hybrids, comprised nearly 17%. In 2024, the automotive sector expects global challenges, such as the energy crisis, slower global demand, and supply-chain issues.
Despite these challenges, global new-vehicle sales are projected to remain steady, with an increase in new-car sales. The global automotive market is anticipated to reach $6.07 trillion by 2030, growing at a 6.9% CAGR. This growth is expected to be fueled by rising customer interest in electric vehicles and advancements in autonomous driving technology.
Considering these trends, let’s take a look at the fundamentals of the featured stocks from the Auto & Vehicle Manufacturers industry, starting with the one ranked lower from the investment point of view.
Stock #2: Porsche Automobil Holding SE (POAHY)
Headquartered in Stuttgart, Germany, POAHY operates as an automobile manufacturer worldwide. It operates in two segments: Core Investments and Portfolio Investments. The company is involved in investments in the areas of mobility and industrial technology. It offers its products under the Volkswagen, Audi, SEAT, KODA, Bentley, Bugatti, Lamborghini, and Porsche brand names.
POAHY’s 7.16% trailing-12-month Return on Common Equity is 36.7% lower than the 11.32% industry average. Likewise, the stock’s 0.15% trailing-12-month Return on Total Capital is 97.5% lower than the 6.08% industry average.
POAHY’s results from investments for the nine months that ended September 30, 2023, decreased 14.1% year-over-year to €3.82 billion ($4.16 billion). The company’s result after tax decreased 20% year-over-year to €3.80 billion ($4.14 billion). In addition, its total comprehensive income was €4.14 billion ($4.51 billion), down 55.8% over the prior-year quarter.
Analysts expect POAHY’s EPS for the fiscal year ending December 31, 2024, to decrease 0.8% year-over-year to $1.90. Over the past six months, POAHY’s stock has declined 21.2% to close the last trading session at $4.73.
POAHY’s POWR Ratings reflect its bleak outlook. The stock has an overall rating of D, equating to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a D grade for Growth, Value, Momentum, and Quality. It is ranked #40 out of 52 stocks in the Auto & Vehicle Manufacturers industry. Beyond what we stated above, we also have given POAHY grades for Stability and Sentiment. Get all POAHY ratings here.
Stock #1: Ford Motor Company (F)
F develops, delivers, and services a range of Ford trucks, commercial cars and vans, sport utility vehicles, and Lincoln luxury vehicles worldwide. It operates through Ford Blue, Ford Model E, Ford Pro, Ford Next, and Ford Credit segments.
On October 25, 2023, F announced a tentative labor contract agreement with the UAW, covering the U.S. operations. This agreement aims to restart several manufacturing plants and call back 20,000 employees. It is now subject to ratification by F's UAW-represented employees.
In terms of the trailing-12-month Capex/Sales, F’s 4.60% is 49.9% higher than the 3.07% industry average. Its 14.27% trailing-12-month Return on Common Equity is 26% higher than the 11.32% industry average. However, the stock’s 10.4% trailing-12-month gross profit margin is 70.4% lower than the 35.15% industry average.
F’s total revenues for the third quarter (ended September 30, 2023) increased 11.2% year-over-year to $43.80 billion. Its adjusted net income increased 27.4% year-over-year to $1.34 billion. Its adjusted EBIT rose 21.9% year-over-year to $2.20 billion. The company’s adjusted EPS came in at $0.39, representing an increase of 30% year-over-year.
On the other hand, its total liabilities equity came in at $268.07 billion, up 47.6% year-over-year to $2.46 billion as of September 30, 2023.
Street expects F’s revenue for the quarter ending December 31, 2023, to increase 0.5% year-over-year to $41.97 billion, and its EPS for the same quarter is expected to decrease 72.1% year-over-year to $0.14. Over the past month, the stock has declined 6.8% to close the last trading session at $11.20.
F’s POWR Ratings reflect uncertainty. It has an overall rating of C, which translates to a Neutral in our proprietary rating system.
It has a C grade for Growth, Momentum, and Quality. It is ranked #34 in the same industry. To see F’s ratings for Value, Stability, and Sentiment, click here.
What To Do Next?
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POAHY shares were unchanged in premarket trading Monday. Year-to-date, POAHY has declined -6.52%, versus a 1.82% 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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