The automobile sector’s prospects look promising due to rising disposable incomes, greater consumer confidence, growth in wages, higher sales of new vehicles, greater adoption of electric and hybrid cars, and favorable government initiatives encouraging the purchase of EVs. Moreover, the anticipation of interest rate cuts this year further bolsters the sector’s outlook.
Amid this backdrop, fundamentally strong auto stocks AB Volvo (publ) (VLVLY), Blue Bird Corporation (BLBD), Great Wall Motor Company Limited (GWLLY), and Honda Motor Co., Ltd. (HMC) could be solid portfolio additions.
Global light vehicle demand remains strong in the first quarter of 2024, as evidenced by the 5% rise year-over-year, owing to the falling inflation, improving purchasing power, and expectations of a soft economic landing. Moreover, S&P Global estimates global light vehicle sales to witness a 2-3% uptick over 2024 and 2025, reaching more than $90 million, driven by Southeast Asia and India growth.
U.S. new vehicle sales amounted to nearly 3.80 million vehicles in the first quarter of 2024, representing a 5.1% growth from January to March, reflecting sustained consumer demand and a resilient supply chain. Analysts expect U.S. auto sales to rise by 10% year-over-year in April. Similarly, new light vehicle sales in April are anticipated to reach 1.34 million units.
With automakers adding advanced vehicle features like autonomous driving, adaptive cruise control, smart infotainment systems, and lane departure warning, consumers are flocking to buy new cars. The global automotive industry market is estimated to reach $6.86 trillion by 2033, exhibiting a 6.8% CAGR.
With these favorable trends in mind, let's delve into the fundamentals of the four Auto & Vehicle Manufacturers stocks, starting with the fourth in line.
Stock #4: AB Volvo (publ) (VLVLY)
Headquartered in Gothenburg, Sweden, VLVLY manufactures and sells trucks, buses, construction equipment, and marine and industrial engines in Europe, the U.S., Asia, Africa, and Oceania.
On April 11, 2024, VLVLY announced that it would build a new heavy-duty truck manufacturing plant in Mexico to supplement its U.S. production. The plant will provide additional capacity to support Volvo Trucks and Mack Trucks' growth plans in the U.S. and Canadian markets. It is expected to be operational in 2026.
On March 22, 2024, VLVLY and Renault formed Flexis SAS, a joint venture in France. Over three years, each will invest EUR300 million ($325.42 million) in developing next-gen electric vans that will address urban logistics' decarbonization needs.
In terms of forward EV/Sales, VLVLY is trading at 1.46x, 20.2% lower than the industry average of 1.83x. The stock’s forward Price/Sales of 1.11x is 27% lower than the industry average of 1.52x.
VLVLY’s net sales for the fiscal first quarter that ended March 31, 2024, stood at SEK131.18 billion ($12.21 billion). Its operating income rose 5.2% from the year-ago quarter to SEK18.16 billion ($1.69 billion).
Moreover, its income for the period attributable to owners of VLVLY stood at SEK14.08 billion ($1.31 billion), up 9.1% over the prior-year quarter. Also, its earnings per share grew 9% year-over-year to SEK6.92.
Analysts expect VLVLY’s EPS and revenue for fiscal 2025 to increase 10.5% and 5.4% year-over-year to $2.37 and $50.84 billion, respectively. The company surpassed the Street revenue estimates in each of the trailing four quarters, which is impressive. Over the past year, the stock has gained 39.2% to close the last trading session at $26.88.
VLVLY’s POWR Ratings reflect its positive prospects. It has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
VLVLY has a B grade for Stability and Quality. Within the Auto & Vehicle Manufacturers industry, it is ranked #9 out of 51 stocks. Click here for the additional POWR Ratings of VLVLY (Growth, Value, Momentum, and Sentiment).
Stock #3: Blue Bird Corporation (BLBD)
BLBD designs, engineers, manufactures and sells school buses in the U.S., Canada, and internationally. The company operates through two segments: Bus and Parts.
On May 1, 2024, BLBD extended its collaboration with Ford and ROUSH CleanTech until 2030. It will continue to offer low-emission propane and gasoline-powered school buses that exceed strict emission standards, benefiting over 1,000 school districts with cost-effective and clean student transportation.
In terms of forward EV/EBIT, BLBD is trading at 13.66x, 16% lower than the industry average of 16.27x. The stock’s forward Price/Sales of 1.29x is 14.7% lower than the industry average of 1.52x.
For the fiscal second quarter that ended March 30, 2024, BLBD’s revenue and adjusted EBITDA stood at $345.92 million and $45.75 million, up 15.4% and 117% year-over-year, respectively. For the same quarter, its adjusted net income and earnings per share increased 240.7% and 229.6% from the year-ago quarter to $29.30 million and $0.89, respectively.
Street expects BLBD’s revenue and EPS for the quarter ending June 30, 2024, to increase 11% and 16.7% year-over-year to $326.68 million and $0.51, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters. BLBD’s stock has gained 175.1% over the past six months, closing the last trading session at $52.98.
BLBD’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to Buy in our proprietary rating system.
It has an A grade for Quality and a B for Growth and Sentiment. It is ranked #8 in the same industry. To see BLBD’s Value, Momentum, and Stability ratings, click here.
Stock #2: Great Wall Motor Company Limited (GWLLY)
Headquartered in Baoding, China, researches, develops, manufactures, and sells automobiles and automotive parts and components internationally. The company offers SUVs, sedans, pick-up trucks, multi-purpose vehicles, and energy vehicles primarily under the Haval, WEY, ORA, Tank, and Great Wall Pickup brand names.
On March 18, 2024, GWLLY launched the TANK product range in Mexico. The range will center on off-road genes and a user-centric brand philosophy. GWLLY will collaborate with famous outdoor brands to create a new "off-road+" lifestyle. The entry of the tank brand into the Mexican market is GWLLY’s new measure to fulfill its commitment to the Mexican market and explore its off-road culture.
In terms of forward EV/Sales, GWLLY is trading at 0.89x, 27.3% lower than the industry average of 1.22x. The stock’s forward Price/Sales of 0.52x is 42.6% lower than the industry average of 0.90x.
GWLLY’s total operating revenue for the fiscal first quarter that ended March 31, 2024, increased 47.6% year-over-year to RMB42.86 billion ($5.93 billion). Its operating profit stood at RMB3.63 billion ($502.76 million), compared to an operating loss of RMB70.66 million ($9.78 million) in the prior-year quarter.
In addition, its net profit attributable to shareholders of the parent company stood at RMB3.23 billion ($446.72 million) or RMB0.38 per share, up considerably from the year-ago quarter.
For the quarter ending September 30, 2024, GWLLY’s revenue is expected to increase 14% year-over-year to $7.72 billion. The stock has gained 63.6% over the past three months to close the last trading session at $18.
GWLLY’s POWR Ratings reflect this promising outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
GWLLY has an A grade for Growth and a B for Value and Stability. It is ranked #4 in the same industry. Click here to see the additional POWR Ratings of GWLLY for Momentum, Sentiment, and Quality.
Stock #1: Honda Motor Co., Ltd. (HMC)
Headquartered in Tokyo, Japan, HMC develops, manufactures, and distributes motorcycles, automobiles, power, and other products internationally. It operates through four segments: Motorcycle Business, Automobile Business, Financial Services Business, and Power Product and Other Businesses.
On April 25, 2024, HMC announced the launch of two new electric vehicle (EV) models in China: the e:NP2 by GAC Honda and the upcoming e:NS2 by Dongfeng Honda in June 2024.
This is a part of HMC’s plan to introduce 10 EV models in China by 2027 and reach 100% EV sales by 2035. These new models boost advanced technologies for better performance, smart features, and attractive design.
On the same date, HMC announced its plans to build a comprehensive EV value chain in Canada with an approximate investment of CAD$15 billion ($11.01 billion), partnering with POSCO Future M Co., Ltd., and Asahi Kasei Corporation to strengthen its EV supply system and readiness for increased demand in North America.
This initiative aligns with HMC’s goal for BEVs and FCEVs to represent 100% of vehicle sales by 2040.
In terms of forward EV/EBITDA, HMC is trading at 6.55x, 33.2% lower than the industry average of 9.81x. The stock’s forward Price/Cash Flow of 3.12x is 69% lower than the industry average of 10.08x.
For the fiscal year that ended March 31, 2024, HMC’s sales revenue increased 20.8% from the year-ago value to ¥20.43 trillion ($131.31 billion). Its operating profit rose 77% year-over-year to ¥1.38 trillion ($8.88 billion).
Moreover, its profit for the year attributable to owners of the parent stood at ¥1.11 trillion ($7.12 billion), up 70% over the previous-year value. Also, its earnings per share attributable to owners of the parent grew 76.5% year-over-year to ¥225.88.
Analysts expect HMC’s revenue for the quarter ending September 30, 2024, to increase marginally year-over-year to $33.12 billion. Its EPS for fiscal 2026 is expected to grow 157.4% year-over-year to $2.61. Over the past year, the stock has gained 22.6%, closing the last trading session at $33.84.
HMC’s robust prospects are reflected in its POWR Ratings. It has an overall A rating, equating to a Strong Buy in our proprietary rating system.
HMC has an A grade for Stability and a B for Value and Quality. It is ranked #3 within the Auto & Vehicle Manufacturers industry. Beyond what we stated above, we have also rated HMC for Growth, Momentum, and Sentiment. Get all the HMC ratings here.
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.
VLVLY shares were trading at $26.55 per share on Thursday morning, down $0.33 (-1.23%). Year-to-date, VLVLY has gained 9.13%, versus a 11.99% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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