Rising disposable incomes, flexible financing, urbanization, and changing mobility preferences contribute to the growing consumer demand for automobiles. Moreover, government incentives and innovations in clean vehicles are driving industry growth.
Against this backdrop, investors could consider buying fundamentally strong auto stocks such as Ferrari N.V. (RACE), Renault SA (RNLSY), and Mercedes-Benz Group AG (MBGAF). Before delving deeper into their fundamentals, let’s discuss what’s shaping the auto industry’s prospects.
New vehicle sales in the United States increased 5.1% between January and March, as consumers remained in the market despite high-interest rates. In March, 1,455,030 new vehicles were sold in the U.S., up 5.1% from March 2023 and 15.5% sequentially.
This increase in new vehicle sales reflects a favorable trend in the automotive industry, reflecting sustained customer demand and recovering supply chains. .
The auto industry’s growth will be driven by the growing adoption of electric vehicles (EVs), hybrid vehicles, technological advancements, and expected interest rate cuts. S&P Global Mobility forecasts global new vehicle sales of 88.30 million in 2024, a 2.8% increase year-over-year. Meanwhile, BloombergNEF expects global EV sales to reach 16.7 million in 2024.
Additionally, the global automotive industry market is predicted to reach $6.68 trillion by 2032, growing at a CAGR of 5.7%. Moreover, investors’ interest in auto stocks is evident from the First Trust S-Network Future Vehicles & Technology ETF (CARZ) 8.9% returns over the past year.
Considering these conducive trends, let’s analyze the fundamentals of the three Auto & Vehicle Manufacturers picks, beginning with the third choice.
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.
In terms of the trailing-12-month net income margin, RACE’s 20.97% is 358.2% higher than the 4.58% industry average. Likewise, its 10.20% levered FCF margin is 84.9% higher than the 5.52% industry average. Additionally, its 44.29% trailing-12-month Return on Common Equity is 298.6% higher than the industry average of 11.11%.
During the fiscal fourth quarter that ended December 31, 2023, RACE’s net revenues and adjusted EBIT increased 11.3% and 24.8% year-over-year to €1.52 billion ($1.62 billion) and €372 million ($395.87 million), respectively. Moreover, its adjusted EBITDA stood at €558 million ($593.81 million), up 19% from the prior-year quarter.
For the same quarter, its adjusted net profit and adjusted EPS stood at €294 million ($312.87 million) and €1.62, up 33% and 33.9% from the year-ago quarter, respectively.
RACE’s revenue and EPS for the quarter ended March 31, 2024, are expected to increase 4.8% and 11.2% year-over-year to $1.65 billion and $1.98, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 45.7% over the past year to close the last trading session at $406.05.
RACE’s POWR Ratings reflect this promising outlook. It 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 has an A grade for Quality and a B for Stability and Sentiment. Within the Auto & Vehicle Manufacturers industry, it is ranked #23 out of 52 stocks. To see RACE’s additional Growth, Value, and Momentum ratings, click here.
Stock #2: Renault SA (RNLSY)
Based in Boulogne-Billancourt, France, RNLSY designs, manufactures, sells, repairs, maintains, and leases motor vehicles worldwide. The company also designs and produces parts and equipment used for manufacturing and operating vehicles. It operates in the Automotive, Sale Financing, and Mobility Services segments.
RNSLY’s trailing-12-month CAPEX / Sales of 5.63% is 84.1% higher than the industry average of 3.06%. Additionally, its 7.66% trailing-12-month EBIT margin is marginally higher than the industry average of 7.60%.
For the fiscal year that ended December 31, 2023, RNLSY’s group revenue increased 13.1% year-over-year to €52.38 billion ($55.74 billion). Its operating income grew 13.4% year-over-year to €2.48 billion ($2.64 billion).
The company’s net income came in at €2.31 billion ($2.46 billion), against a net loss of €716 million ($761.95 million) from the previous year. In addition, the company’s free cash flow increased 42.7% from the previous year to €3.02 billion ($3.21 billion).
Analysts expect RNLSY’s revenue for the quarter ending September 30, 2024, to increase 16.2% year-over-year to $12.92 billion. RNLSY’s shares have gained 43.9% over the past six months to close the last trading session at $10.07.
It’s no surprise that RNLSY has an overall B rating, equating to a Buy in our POWR Ratings system.
It has a B grade for Value and Stability. It is ranked #22 in the same industry. Beyond what is stated above, we’ve also rated RNLSY for Growth, Momentum, Sentiment, and Quality. Get all RNLSY ratings here.
Stock #1: Mercedes-Benz Group AG (MBGAF)
Based in Stuttgart, Germany, MBGAF operates as a global automotive company. It develops, manufactures, and sells premium and luxury cars and vans under the Mercedes-AMG, Mercedes Benz, Mercedes-Maybach, and Mercedes-EQ brands, as well as related spare parts and accessories. It also offers financing, leasing, car subscription and rental, and other services.
In terms of the trailing-12-month EBIT margin, MBGAF’s 11.41% is 50.1% higher than the 7.60% industry average. Likewise, its 9.31% net income margin is 103.4% higher than the 4.58% industry average. Additionally, its 5.42% trailing-12-month Return on Total Assets is 29% higher than the industry average of 4.20%.
For the fiscal year that ended December 31, 2023, MBGAF’s revenue increased 2.1% year-over-year to €153.22 billion ($163.01 billion). Its adjusted EBIT stood at €19.66 billion ($20.92 billion). The company’s net profit and EPS stood at €14.53 billion ($15.46 billion) and €13.46, respectively.
Also, the company’s free cash flow of the Industrial Business grew 39.2% from the previous year to €11.32 billion ($12.05 billion).
Street expects MBGAF’s revenue for the quarter ending September 30, 2024, to increase 1.9% year-over-year to $40.02 billion. Over the past three months, the stock has gained 21.4% to close the last trading session at $78.69.
MBGAF’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Momentum, Stability, and Quality. It is ranked #4 in the Auto & Vehicle Manufacturers industry. Click here to see MBGAF's rating for Sentiment.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
MBGAF shares were trading at $79.17 per share on Monday afternoon, up $0.48 (+0.60%). Year-to-date, MBGAF has gained 14.57%, versus a 4.96% 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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