3 Auto Stocks to Start Watching This Week

Although the current economic outlook looks uncertain, the automotive industry has much to be optimistic about with April’s auto sales performance. With an uptick in year-over-year vehicle sales and major automakers seeing growth, the industry’s overall outlook seems bright.

Therefore, it could be wise for investors to keep an eye on quality auto stocks Mercedes-Benz Group AG (MBGAF), Bayerische Motoren Werke Aktiengesellschaft (BMWYY), and Honda Motor Co., Ltd. (HMC) this week.

As supply chain snags gradually ease, top global automakers reported a rise in first-quarter U.S. sales, thanks to improving shipments to dealers. The U.S. market for new cars and light trucks shifted back into a higher gear in April, signaling that pent-up demand remains healthy despite rising interest rates.

According to LMC Automotive, U.S. sales rose 10% year-over-year to 1.36 million vehicles in April, with retail sales of around 1.06 million and fleet sales of approximately 296,000 driving most of the gain, as inventories continue to recover.

Moreover, the industry’s focus on developing Electric Vehicles (EVs) is accelerating its overall growth prospects further. Given the spurring demand, it is no surprise that the overall EV sales increased by 66% year over year in the first quarter of 2023. According to CleanTechnica‘s calculations, pure EV sales rose to 7.1% of U.S. auto sales in the same period.

Furthermore, fuelled by greater penetration in emerging markets, rapid adoption of EVs coupled with consistent production volume, and the sector's demand backlog, global car sales are forecasted to reach 69 million this year. The global automotive market is expected to reach $2.46 trillion by 2028, growing at a CAGR of 2.8%.

Given this backdrop, let’s take a closer look at auto stocks with a competitive advantage and market share.

Mercedes-Benz Group AG (MBGAF)

Headquartered in Stuttgart, Germany, MBGAF is an automotive company that engages in the production and sale of premium and luxury cars and vans under the Mercedes-AMG, Mercedes-Benz, Mercedes-Maybach, and Mercedes-EQ brands, and related spare parts and accessories.

Recently, the company’s fully integrated business unit, Mercedes-Benz Vans, outlined its focused strategy to further strengthen its position as a leading manufacturer of premium light commercial vehicles. With more than 40,000 eVans already sold worldwide, the unit is targeting strong growth and an EV share of up to 20% by 2026 and more than 50% by 2030.

On February 23, BMWYY announced a long-term strategic partnership with Google to accelerate auto innovation and create the industry's next-generation digital luxury car experience. This partnership enables the company to build its own branded navigation using new in-car geospatial data and navigation capabilities from the Google Maps Platform.

For the fiscal first quarter that ended March 31, 2023, MBGAF’s revenue increased 7.6% year-over-year to Є37.52 billion ($40.57 billion). Its gross profit grew 18.1% from the prior-year quarter to Є9.41 billion ($10.2 billion).

The company’s adjusted EBIT rose 2.3% year-over-year to Є5.42 billion ($5.86 billion), while its net profit increased 11.9% from the year-ago value to Є4.01 billion ($4.34 billion). Also, its EPS stood at Є3.69, up 13.2% year-over-year.

The consensus revenue estimate of $42.62 billion for the second quarter (ending June 30, 2023) represents a 14.6% increase year-over-year. The consensus EPS estimate of $3.74 for the current quarter indicates a 26.9% year-over-year improvement. The company surpassed the consensus revenue estimates in each of the trailing four quarters, which is promising.

The stock has gained 39.2% over the past nine months to close the last trading session at $76.56.

MBGAF’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It also has an A grade for Sentiment and a B for Growth, Value, Stability, and Quality. Out of 56 stocks in the B-rated Auto & Vehicle Manufacturers industry, it is ranked first. Click here to see MBGAF’s rating for Momentum.

Bayerische Motoren Werke Aktiengesellschaft (BMWYY)

BMWYY is engaged in the development, manufacture, and sale of automobiles and motorcycles, and spare parts and accessories globally. Based in Munich, Germany, it operates through the following business segments: Automotive; Motorcycles; and Financial Services.

On February 27, BMWYY launched the BMW iX5 Hydrogen pilot fleet, which is currently under practical operation for trial and demonstration purposes. The hydrogen fuel cell system developed and produced by the company demonstrates its leading development expertise in the area of electric drive technologies.

In the same month, the company announced that it had made an investment of another €800 million ($865.17 million) to build its plant in San Luis Potosí, Mexico, ready for the NEUE KLASSE, accelerating the production of pioneering electric vehicles. This reflects BMWYY’s continuous investment in the expansion of its global production network.

BMWYY’s revenues increased 18.3% year-over-year to €36.85 billion ($39.86 billion) in the first quarter that ended March 31, 2023. Its gross profit grew 40.7% from the year-ago value to €7.77 billion ($8.41 billion).

The company’s profit before financial result increased 58.5% year-over-year to €5.38 billion ($5.81 billion), while its cash flow from operating activities improved 98.7% year-over-year to €6.98 billion ($7.55 billion). Also, its attributable net profit and EPS amounted to €3.66 billion ($3.96 billion) and €5.31, respectively, in the same period.

Analysts expect BMWYY’s EPS and revenue to increase 12.8% and 5.2% year-over-year to $10.82 and $158.61 billion, respectively, in the fiscal year 2023. It surpassed the revenue estimates in each of the trailing four quarters.

BMWYY has gained 55.1% over the past nine months to close the last trading session at $37.51.

It is no surprise that BMWYY has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It has an A grade for Stability and a B for Growth, Value, and Quality. Within the same B-rated industry, it is ranked #2.

In addition to the POWR Ratings I’ve just highlighted, you can see the BMWYY ratings for Momentum and Sentiment here.

Honda Motor Co., Ltd. (HMC)

Headquartered in Tokyo, Japan, HMC is engaged in producing and selling motorcycles, automobiles, and power products. It also sells spare parts and provides after-sales services directly through retail dealers, independent distributors, and licensees. The company operates through four business segments: Motorcycle; Automobile; Financial service; and Life creation.

On January 13, LG Energy Solution and HMC entered into a JV agreement to produce lithium-ion batteries for electric vehicles. The plant aims to have an annual production capacity of approximately 40GWh.

All batteries produced by the new JV would be supplied exclusively to HMC plants in North America to power battery-electric vehicles. This strategic alliance is expected to generate substantial revenues in the upcoming years. 

On March 1, both companies held the official ground-breaking ceremony for the above joint venture EV battery facility in Fayette County, Ohio.

During the fiscal year that ended on March 31, 2023, HMC’s sales revenue increased 16.2% year-over-year to ¥16.91 trillion ($122.36 billion). Its profit for the year rose marginally year-over-year to ¥761.16 billion ($5.51 billion).

Its cash flow from operating activities came in at ¥2.13 trillion ($15.41 billion), up 26.8% from its year-ago period. In addition, its cash and cash equivalents increased 3.5% year-over-year to ¥3.80 trillion ($27.52 billion).

Street expects HMC’s revenue to increase 12.4% year-over-year in the first quarter (ending June 30, 2023) to $32.37 billion. Its EPS is expected to increase by 13.2% per annum over the next five years. Shares of HMC have gained 24.9% year-to-date and 19.1% over the past six months to close the last trading session at $28.56.

HMC’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

It has an A grade for Value and a B for Stability and Quality. Among the 56 stocks in the same industry, it is ranked #3. To see the other ratings of HMC for Growth, Momentum, and Sentiment, click here.

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REVISED: 2023 Stock Market Outlook > 

MBGAF shares were trading at $76.61 per share on Tuesday afternoon, down $0.57 (-0.74%). Year-to-date, MBGAF has gained 17.14%, versus a 9.10% rise in the benchmark S&P 500 index during the same period.

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.

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