The increasing demand for high-end passenger vehicles, urbanization, and rising infrastructure spending in the economy are driving the automotive market growth. Given the industry’s tailwinds, investors could consider buying fundamentally sound auto stocks, Isuzu Motors Limited (ISUZY), AB Volvo (publ) (VLVLY), and Subaru Corporation (FUJHY) primed for a potential June rally.
Rapid population growth, urbanization, and the expansion of infrastructure and industries are the main factors driving the growth in commercial vehicle sales. The industrial sector is expanding, creating jobs in areas like construction, mining, and tourism. This job availability has led to a rise in the number of commuters, increasing the demand for public transportation and personal vehicles.
Thus, the automotive industry is projected to grow at a CAGR of 6.9% by 2030.
Moreover, the rising popularity of Electric Vehicles (EVs) is significantly impacting the U.S. automotive industry in multiple ways. Heightened awareness of climate change and the pursuit of sustainable transportation have sparked consumer interest in EVs, prompting automakers to expand their electric vehicle offerings.
BloombergNEF’s EV outlook projects 730 million passenger EVs on the road by 2040. The auto industry has also showcased notable improvement compared to the previous year. In May, the United States witnessed a surge in new vehicle sales, reaching 1.45 million units, marking a 5.1% uptick from the same month in 2023.
Considering these encouraging trends, let’s take a look at the fundamentals of the three best Auto & Vehicle Manufacturers industry stocks, beginning with the third choice.
Stock #3: Isuzu Motors Limited (ISUZY)
ISUZY, headquartered in Yokohama-shi, Japan, 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 May 28, 2024, ISUZY launched the first of a series of Battery Electric Vehicle (BEV) flat-floor route buses, “ERGA EV” (short wheelbase urban model), in Japan. In addition to incorporating zero-emission BEV technology, ERGA EV is the first bus in Japan with a fully flat-floor design.
The ERGA EV will be at the forefront of introducing next-generation buses in Japan, driving the momentum toward Carbon Neutrality (CN) in public transportation.
On May 14, 2024, ISUZY and Gatik AI, Inc. agreed to further enhance the development of the North American autonomous driving business. ISUZY would invest $30 million in Gatik, forging a strong partnership between the two companies in the pursuit of realizing mobility services based on level 4 autonomous driving.
In terms of the trailing-12-month EBIT margin, ISUZY’s 8.65% is 13.9% higher than the 7.60% industry average. Likewise, its 12.19% trailing-12-month EBITDA margin is 10.5% higher than the industry average of 11.04%. Furthermore, the stock’s 4.77% trailing-12-month Capex/Sales is 58.6% higher than the industry average of 3.01%.
ISUZY’s net sales for the fiscal year, which ended on March 31, 2024, increased 5.9% year-over-year to ¥3.39 trillion ($21.82 billion). Its operating income rose 15.6% over the prior-year quarter to ¥293.09 billion ($1.89 billion). The company’s profit attributable to owners of the parent increased 16.3% year-over-year to ¥176.44 billion ($1.14 billion).
Additionally, as of March 31, 2024, the company’s total assets stood at ¥1.82 trillion ($11.72 billion), compared to ¥1.70 trillion ($10.94 billion) as of March 31, 2023.
ISUZY’s revenue is expected to increase 162.1% year-over-year to $22.08 billion for the fiscal year ending March 2025. The company surpassed its revenue estimates in three of the trailing four quarters, which is promising.
Shares of ISUZY have gained 4.4% over the past month to close the last trading session at $13.19.
ISUZY’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
ISUZY has an A grade for Value and a B for Quality and Stability. It is ranked #7 out of 52 stocks in the Auto & Vehicle Manufacturers industry.
In addition to the POWR Ratings highlighted above, one can access ISUZY’s ratings for Sentiment, Growth, and Momentum, here.
Stock #2: AB Volvo (publ) (VLVLY)
Headquartered in Gothenburg, Sweden, VLVLY and its subsidiaries manufacture and sell trucks, buses, construction equipment, and marine and industrial engines internationally. The company offers trucks for long-haulage, construction, mining, and distribution purposes, as well as city and intercity buses, coaches, bus chassis, and associated transport systems.
On April 11, VLVY announced building a new heavy-duty truck manufacturing plant in Mexico to expand its U.S. production. The plant is expected to be functional in 2026 and provide additional capacity to support VLVLY and Mack Trucks' growth plans in the U.S. and Canadian markets.
On March 22, VLVLY and Renault Group launched the new company, Flexis SAS, for the next generation of fully electric and software-defined vehicles. Based in France, the company was formed to address the growing need for decarbonized and efficient urban logistics. VLVLY and Renault plan to invest €300 million ($320.33 million) respectively over the next three years.
VLVLY’s trailing-12-month EBIT margin of 14.66% is 43.2% higher than the industry average of 10.23%, and its trailing-12-month EBITDA margin of 15.81% is 14% higher than the industry average of 13.87%. In addition, the stock’s trailing-12-month net income margin of 9.23% is 53.1% higher than the 6.03% industry average.
For the first quarter that ended March 31, 2024, VLVLY reported net sales of SEK 131.18 billion ($12.56 billion). Its operating income grew 5.2% year-over-year to SEK 18.16 billion ($1.74 billion). The company’s income for the period and EPS came in at SEK 14.10 billion ($1.35 billion) and SEK 6.92, up 9% from the previous year’s quarter, respectively.
In addition, the company’s operating cash flow in industrial operations increased 77.8% year-over-year to SEK 8.90 billion ($852.34 million).
Analysts expect VLVLY’s revenue for the fiscal year (ending December 2025) to increase 5.2% year-over-year to $50.73 billion. The company’s EPS is expected to grow 10.5% year-over-year to $2.41 for the same year. Furthermore, the company has topped the consensus revenue estimates in each of the trailing four quarters.
The stock has surged 18% over the past six months to close the last trading session at $26.69.
VLVLY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
VLVLY has a B grade for Stability and Quality. It is ranked #6 in the same industry.
Click here to access the additional VLVLY ratings (Growth, Value, Momentum, and Sentiment).
Stock #1: Subaru Corporation (FUJHY)
Headquartered in Tokyo, Japan, FUJHY manufactures and sells automobiles and aerospace products in Japan, the rest of Asia, North America, Europe, and internationally. It operates through three segments: Automotive; Aerospace; and Others.
On May 16, FUJHY and KINTO Corporation entered into a business partnership agreement wherein they launched the new car subscription service "SUBARU x KINTO."
“SUBARU x KINTO" is a new service that utilizes KINTO's new car subscription service platform to meet the needs of people who want to choose a plan that suits their usage when it comes to the costs of purchasing and maintaining a new car.
In terms of the trailing-12-month Return in Common Equity, FUJHY’s 16.51% is 42.5% higher than the 11.59% industry average. Its 8% trailing-12-month Return on Total Assets is 91.6% higher than the industry average of 4.18%. Moreover, its 1.07x trailing-12-month asset turnover ratio is 8.4% higher than the industry average of 0.99x.
FUJHY’s revenues for the fiscal year that ended March 31, 2024, increased 24.6% year-over-year to ¥47.03 billion ($302.73 million). Its operating profit rose 75% from the year-ago value to ¥4.68 billion ($30.12 million). For the same period, its profit for the period attributable to owners of the parent increased 92.1% year-over-year to ¥3.85 billion ($24.78 billion).
Analysts expect FUJHY’s revenue for the first quarter (ending June 2024) to increase 3.2% year-over-year to $7.79 billion. For the fiscal year ending March 2026, Street expects its revenue to increase 3.1% year-over-year to $32.48 billion, and its EPS is expected to grow 1.3% year-over-year to $1.57 for the same year. Moreover, the company surpassed revenue estimates in each of the trailing four quarters.
FUJHY’s stock has soared 26.5% over the past six months to close the last trading session at $11.08.
FUJHY’s POWR Ratings reflect bright prospects. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
The stock has a B grade for Stability, Quality, and Value. It is ranked #4 in the same industry.
Beyond what is stated above, we’ve also rated FUJHY for Growth, Momentum, and Sentiment. Get all FUJHY ratings here.
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VLVLY shares were trading at $27.46 per share on Wednesday afternoon, up $0.77 (+2.88%). Year-to-date, VLVLY has gained 12.87%, versus a 12.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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