General Motors (GM), Honda Motor (HMC), and Harley-Davidson (HOG) - Auto Stock Buy or Hold?

Increased demand for vehicles and escalating technological advancements within the automotive industry could steer the auto industry on a promising growth path. Therefore, stocks like General Motors Company (GM) and Honda Motor Co., Ltd. (HMC) could be solid buys now, while investors could watch and wait for a better entry in Harley-Davidson, Inc. (HOG).

Before delving into the fundamentals of the featured stocks, let’s look at the industry landscape.

The automobile industry has persevered through various challenges, such as inflationary burdens and supply chain interruptions. Despite these obstacles, the industry exhibited remarkable durability by tactfully pursuing avenues for growth.

The industry is poised for further growth thanks to the rising demand for automotive customization, the incorporation of advanced technologies like navigation and infotainment systems, and driver-assist features.

An exemplification of this resilience can be observed in the rise of new vehicle sales in August, which surged by double-digit percentages compared to a year ago. Global auto sales for 2023 are expected to reach 86.8 million units, higher than the previous estimate of 86.4 million units.

In addition, IEA’s latest projections suggest a 35% year-over-year surge in Electric Vehicle (EV) sales for 2023, reaching 14 million units. Such explosive expansion places EVs on track to capture an even larger slice of the overall car market, potentially soaring to 18% by the end of 2023.

Considering these conducive trends, let’s look at the fundamentals of the three Auto & Vehicle Manufacturers stocks, starting with number 3.

Stock #3: Harley-Davidson, Inc. (HOG)

HOG is a global auto manufacturer with three main segments: Harley-Davidson Motor Company; LiveWire; and Harley-Davidson Financial Services. The company manufactures and sells motorcycles, as well as provides financial services.

On June 20, HOG introduced the H-D Membership program, aiming to strengthen its community and engagement among riders and moto-culture enthusiasts. This initiative, offering personalized experiences, benefits, and loyalty rewards, is expected to enhance customer loyalty and brand engagement, potentially boosting HOG's prospects.

In the same month, HOG introduced two premium 2023 Customer Vehicle Operations™ (CVO) models with advanced technology and a powerful Milwaukee-Eight VVT 121 engine, aiming to elevate the Grand American Touring experience. This launch is expected to enhance HOG's product lineup and boost the company's sales and market presence.

The company’s revenue from the Harley-Davidson Motor Company (HDMC) segment for the fiscal second quarter (ended June 30, 2023) decreased 4.5% year-over-year to $1.20 billion. However, the gross profit of the HDMC segment came in at $417.47 million, registering an increment of 7.8% year-over-year.

HOG’s net income came in at $173.83 million, decreasing 19.5% from the previous year’s value. On the other hand, for the six months ended June 30, its net cash provided by operating activities rose 68.1% from the prior-year period to $410.52 million.

Analysts expect HOG’s revenue to increase 2% year-over-year to $4.98 billion for the current fiscal year (ending December 2023). However, EPS for the same period is expected to be $4.61, indicating a decline of 7.1% from the prior year.

The stock has declined 21.2% over the past year to close the last trading session at $32.83. On the other hand, it is up marginally intraday.

HOG’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, which translates to Neutral in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

HOG also has a C grade for Momentum. It is ranked #34 out of 56 stocks in the Auto & Vehicle Manufacturers industry. Click here to see additional HOG ratings.

Stock #2: General Motors Company (GM)

GM is a global automotive company that manufactures and sells vehicles and automobile parts under various brand names. It also offers various after-sale and connected services, including software-enabled features and subscriptions for vehicle owners. Additionally, GM operates in automotive financing and insurance services.

On September 13, it was reported that GM and NP Aerospace signed a collaborative Memorandum of Understanding (MOU) to develop cooperative research and development, post-production support, and global logistics and sustainment.

About this agreement, Steve duMont, GM Defense president, said, "This collaboration will help position our commercial-based solutions, including the ISV and HD SUV, to global militaries while aligning our capabilities to meet the needs of the UK Ministry of Defence's Land Industrial Strategy."

On August 8, GM announced its plans to expand vehicle-to-home (V2H) bidirectional charging technology to its Ultium-based electric vehicles by 2026, starting with models like the 2024 Chevrolet Silverado EV RST. This move aligns with GM’s all-electric future vision.

For the fiscal second quarter (ended June 30), GM’s revenue increased 25.1% year-over-year to $44.75 billion. Its adjusted EBIT improved 38% from the prior-year quarter to $3.23 billion. Its adjusted automotive free cash flow rose 294.3% from the same period last year to $5.55 billion, while its adjusted EPS came in at $1.91, up 67.5% year-over-year.

Street expects GM’s EPS to increase 1.5% year-over-year to $7.70 for the fiscal year ending December 2023. Its revenue for the same year is projected to reach $171.17 billion, growing 9.2% year-over-year. Additionally, it topped the EPS estimates in each of the trailing four quarters, which is impressive.

The stock has increased 2.5% over the past month and 1.9% intraday to close the last trading session at $33.96.

GM’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. It has a B grade for Value and Sentiment.

Within the same industry, it is ranked #26. Click here to view GM’s ratings for Growth, Momentum, Stability, and Quality.

Stock #1: Honda Motor Co., Ltd. (HMC)

HMC, headquartered in Tokyo, Japan, is a multinational corporation that manufactures motorcycles, automobiles, and power products worldwide. It also provides financial services. The company operates through the Motorcycle Business; Automobile Business; Financial Services Business; and Power Product and Other segments.

On September 12, American Honda Motor Co., Inc. announced an agreement with BMW and Ford to create ChargeScape, LLC, an equally-owned company expected to be a single platform connecting electric utilities, automakers, and interested electric vehicle customers. This aligns with HMC’s carbon-neutrality goal.

On July 7, HMC announced its partnership with IT solution and service provider SCSK Corporation to boost its software development capabilities for electrified and connected vehicles. It's a move by HMC to stay competitive and agile in the rapidly evolving automotive industry.

HMC’s sales revenue increased by 20.8% year-over-year to ¥4.62 trillion ($31.30 billion) for the fiscal first quarter of 2024 (ended June 30). The company’s operating profit and profit for the period amounted to ¥394.45 billion ($2.67 billion) and ¥382.95 billion ($2.59 billion), up 77.5% and 134.1% from the same period last year, respectively.

Earnings per share attributable to owners of the parent came in at ¥219.06 ($1.48), increasing 151.1% from the prior-year quarter.

For the fiscal year ending March 2024, EPS is estimated to increase 29.8% year-over-year to $3.71, while revenue is expected to reach $131.42 billion, registering a 393.1% increase from the previous-year value.

HMC’s shares have gained 60.4% year-to-date and 47.6% over the past year, closing the last trading session at $36.67.

HMC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It has an A grade for Value, Stability, and Sentiment and a B for Growth and Quality.

Within the same industry, it is ranked first. Click here to view HMC’s rating for Momentum.

What To Do Next?

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HMC shares were trading at $36.56 per share on Wednesday morning, down $0.11 (-0.30%). Year-to-date, HMC has gained 61.95%, versus a 17.32% rise in the benchmark S&P 500 index during the same period.

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.

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