Given evolving consumer preferences, including a shift toward eco-friendly vehicles, population growth in cities, consumer spending power, digitalization and Industry 4.0., and favorable government regulations and incentives, the automotive sector is well-placed for significant growth and expansion in the upcoming years.
Considering the industry’s rosy prospects, it could be wise to invest in top auto stocks Stellantis N.V. (STLA), Suzuki Motor Corporation (SZKMY), Rolls-Royce Holdings plc (RYCEY), and Volkswagen AG (VWAGY), which have considerable potential for solid profits.
This year, new car sales are expected to hit 15.70 million, offering buyers more negotiating power due to improved availability and slowing price increases. Hybrid vehicles are gaining popularity, reaching a 14% market share, while EV sales are projected to rise to 9% despite slowing momentum and increased dealer inventories.
Besides, the Biden administration's recently finalized new tailpipe rules aimed to push the U.S. auto market toward EVs and hybrids. According to the Kelley Blue Book, EVs made up only 7.6% of new car sales last year. The new rule targets 35% to 56% for EVs by 2032 and 13% to 36% for plug-in hybrids by 2032.
These government regulations are expected to cut passenger car pollution by nearly half from 2026 levels, reducing over 7 billion metric tons of emissions.
As a result, the electric vehicle market is booming due to declining costs and investment in charging infrastructure, making electric vehicles more affordable, reducing emissions, and driving innovation in the sector. The U.S. electric vehicle market is expected to grow at a CAGR of 14.6% to reach $158.7 billion by 2032.
Meanwhile, the hybrid vehicle market is growing significantly due to environmental concerns and the benefits of hybrid technology, which offers higher fuel efficiency and lower emissions, attracting more customers. The global hybrid vehicle market is projected to grow at a CAGR of 7.3% to reach $443.91 billion by 2030.
Considering these encouraging market trends, let’s examine the fundamentals of the four best auto stock picks.
Stock #4: Stellantis N.V. (STLA)
Based in Hoofddorp, the Netherlands, STLA is a leading global automotive company known for its wide range of vehicles and mobility services under prestigious brands like Jeep, Fiat, and Peugeot. With a focus on design, engineering, and innovation, STLA delivers quality products and experiences to customers worldwide.
On February 15, 2024, STLA announced a share buyback program worth up to €3 billion ($3.25 billion), intending to repurchase common shares except €500 million ($541.18 million) reserved for employee stock plans.
The first tranche, covering up to €1 billion ($1.08 billion), commenced on February 28, 2024, and will conclude no later than June 5, 2024, managed independently by an investment firm. Share repurchases generally help a company significantly enhance its value to its shareholders.
STLA’s trailing-12-month ROTA of 9.20% is 117.8% higher than the industry average of 4.22%. Likewise, the stock's trailing-12-month cash from operations of $24.82 billion is significantly higher than the $281.88 million industry average.
During the six months that ended December 31, 2023, STLA reported net revenues of €91.18 billion ($98.68 billion). It posted a net profit attributable to owners of the parent and adjusted operating income of €7.67 billion ($8.30 billion) and €10.22 billion ($11.06 billion), respectively. The company’s adjusted EPS came in at €2.79 for the quarter.
STLA's revenue is expected to grow marginally year-over-year to $205.56 billion for the fiscal year ending December 2024. Also, analysts expect the company to report an EPS of $5.94 for the same period. In addition, STLA has surpassed consensus revenue estimates in three of the trailing four quarters, which is notable.
The stock has surged by 54.1% over the past six months and 71.5% over the past nine months to close the last trading session at $28.99. Also, it gained 1% intraday.
STLA’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.
The stock has an A grade for Value and a B for Stability and Quality. In the Auto & Vehicle Manufacturers industry, STLA is ranked #11 out of 53 stocks.
For additional ratings on STLA’s Growth, Momentum, and Sentiment, click here.
Stock #3: Suzuki Motor Corporation (SZKMY)
Headquartered in Hamamatsu, Japan, SZKMY is a multinational company specializing in automobiles, motorcycles, and marine products with operations spanning various regions. Its diverse offerings include mini-vehicles, standard-sized vehicles, outboard motors, and additional services such as solar power generation and logistics.
On February 7, 2024, SZKMY revised its dividend forecast, increasing the year-end dividend to ¥55 ($0.36) per share, resulting in an expected annual dividend of ¥110 ($0.73) per share for the fiscal year ending March 2024.
The company pays $2.88 annually, which translates to a yield of 1.56% on the prevailing price level. Its four-year average dividend yield is 2.02%. Moreover, the company boasts a seven-year record for consecutive dividend payments.
SZKMY’s trailing-12-month ROTA of 4.80% is 13.7% higher than the industry average of 4.22%. Likewise, the stock's trailing-12-month CAPEX/Sales of 5.56% is 82.4% higher than the 3.05% industry average.
For the nine months that ended December 31, 2023, SZKMY’s net sales rose 12.7% year-over-year to ¥3.85 trillion ($25.40 billion). The company's operating profit and net cash provided by operating activities increased 29.8% and 42.6% from a year-ago period to ¥346.65 billion ($2.29 billion) and ¥193.76 billion ($1.28 billion), respectively.
As of December 31, 2023, the company’s total liabilities reduced to ¥2.06 trillion ($13.58 billion), compared to its total liabilities of ¥2.07 trillion ($13.66 billion) as of March 31, 2023.
For the fiscal year ending March 31, 2024, the company anticipates its net sales and operating profit to be ¥5.20 trillion ($34.33 billion) and ¥430 billion ($2.84 billion), respectively.
Street anticipates SZKMY's revenue to increase 112.5% year-over-year to $34.64 billion for the fiscal year ending March 2024. Moreover, the company has surpassed the consensus revenue estimates in three of the trailing four quarters.
SZKMY’s stock has increased 33.7% over the past nine months and 12.4% over the past six months to close the last trading session at $184.40. It gained 4.2% intraday.
SZKMY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
SZKMY has a B grade for Value, Stability, and Quality. Within the same industry, it is ranked #10.
Click here for SZKMY’s additional ratings for Growth, Momentum, and Sentiment.
Stock #2: Rolls-Royce Holdings plc (RYCEY)
Based in London, the United Kingdom, RYCEY specializes in developing and delivering power and propulsion solutions worldwide, serving air, sea, and land sectors. Operating through Civil Aerospace; Defence; Power Systems; and New Markets segments, the company offers a diverse range of products and aftermarket services.
On March 18, 2024, RYCEY chose WSP as its design partner for expanding its Raynesway site in Derby, a critical step in meeting the growing demand from the Royal Navy, driven by the AUKUS announcement.
This partnership aims to create new manufacturing and office facilities, with WSP tasked to design these facilities and site infrastructure to support the expansion, which will generate 1,170 skilled roles across various disciplines.
RYCEY’s trailing-12-month net income margin of 14.63% is 146.9% higher than the industry average of 5.93%. Also, the stock's trailing-12-month cash from operations of $3.17 billion is 939% higher than the $304.89 million industry average.
RYCEY’s revenue increased 21.9% year-over-year to £16.49 billion ($20.81 billion) in the fiscal year ended December 31, 2023. Its gross profit and operating profit grew 31.3% and 132.3% from the previous year to £3.62 billion ($4.57 billion) and £1.94 billion ($2.45 billion), respectively.
Furthermore, the company's profit for the year amounted to £2.40 billion ($3.03 billion), compared to its loss for the previous year of £1.27 billion ($1.61 billion).
For the fiscal year 2024, RYCEY estimates an underlying operating profit range of £1.70 billion ($2.15 billion) to £2 billion ($2.52 billion) and a free cash flow range of £1.70 billion ($2.15 billion) to £1.90 billion ($2.40 billion).
Analysts expect RYCEY's revenue and EPS to grow by 9.1% and 26.9% year-over-year to $21.29 billion and $0.22, respectively, for the fiscal year ending December 2024.
RYCEY’s shares increased 204.6% over the past year and 173.3% over the past nine months to close the last trading session at $5.33.
RYCEY’s POWR Ratings reflect its robust prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
RYCEY has a B grade for Momentum, Stability, Sentiment, and Quality. Within the Auto & Vehicle Manufacturers industry, it is ranked #9 out of 53 stocks.
In addition to the POWR Ratings stated above, one can access RYCEY’s additional Growth and Value ratings here.
Stock #1: Volkswagen AG (VWAGY)
Based in Wolfsburg, Germany, VWAGY is a global automotive company that operates in four segments: Passenger Cars and Light Commercial Vehicles; Commercial Vehicles; Power Engineering; and Financial Services. The company manufactures and sells vehicles globally under various brand names, including Volkswagen, Audi, and Porsche.
On March 20, VWAGY strengthened collaboration with Mobileye Global Inc. (MBLY) to advance automated driving functions, aiming to introduce new features across Audi, Bentley, Lamborghini, and Porsche models. Mobileye's technology will enable features like automated overtaking and stopping at red lights, with Volkswagen aiming for a complete in-house system in the long term.
VWAGY’s trailing-12-month cash from operations and cash per share of $21.37 billion and $63.20 are significantly higher than the industry average of $281.88 million and $2.67, respectively.
During the fiscal year that ended December 31, 2023, VWAGY's sales revenue increased 15.5% from the prior year to €322.28 billion ($406.82 billion). The company reported an operating result of €22.58 billion ($28.50 billion), up 2.1% year-over-year. Its cash flows from operating activities and net cash flow stood at €19.36 billion ($24.43 billion) and €2.70 billion ($3.41 billion), respectively.
For fiscal year 2024, VWAGY anticipates sales revenue to surpass the previous year's figure by up to 5%, with an operating return on sales expected to range between 7% and 7.5%.
Street expects VWAGY’s revenue and EPS to grow 1.1% and 67.4% year-over-year to $356.60 billion and $5.84, respectively, for the fiscal year ending December 2024. Additionally, the company topped consensus revenue estimates in three of the trailing four quarters.
VWAGY’s stock soared 15.2% over the past three months and 17.7% over the past six months to close the last trading session at $15.20. Also, it gained marginally intraday.
VWAGY’s POWR Ratings reflect its robust prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
VWAGY has an A grade for Value and Stability and a B for Growth. It is ranked #6 within the same industry.
Beyond the mentioned POWR Ratings, VWAGY's Momentum, Sentiment, and Quality ratings can be accessed 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.
STLA shares were trading at $28.50 per share on Thursday morning, down $0.49 (-1.69%). Year-to-date, STLA has gained 22.21%, versus a 10.46% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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