Following more than two years of pandemic disruptions, the automotive sector has faced supply chain hindrances due to Chinese lockdowns and the Russia-Ukraine war. In addition, the Fed’s interest rate hikes to tame the stubbornly high inflation had a cascading effect on the auto industry. This has resulted in many Americans not planning car purchases this year.
However, with retail sales growth of 3{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} in January, the auto sector performed better than the overall market as sales, excluding motor vehicles and parts, increased by 2.3{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809}, while sales of motor vehicles and parts increased by 5.9{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809}.
Furthermore, soaring gasoline and oil prices are driving demand for Electric Vehicles (EVs), and its growth is being harnessed by favorable government spending that should boost EV adoption and bolster growth in the auto industry. The global EV industry is expected to reach $823.74 billion by 2030, growing at a CAGR of 18.2{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809}.
Given this backdrop, fundamentally strong auto stocks General Motors Company (GM) and Honda Motor Co., Ltd. (HMC) might be solid buys now. However, Lucid Group, Inc. (LCID) might be best avoided due to its weak fundamentals.
Stocks to Buy:
General Motors Company (GM)
GM designs, builds, and sells trucks, crossovers, cars, automobile parts, and accessories in several parts of the world. Its segments are GM North America; GM International; Cruise; and GM Financial.
Recently, GM Defense LLC, a subsidiary of GM, and the Tawazun Council signed a collaborative Memorandum of Understanding (MOU) as the first step toward a formal partnership to develop future products in the areas of advanced mobility and power solutions. Through this collaboration, GM Defense’s reach should expand to defense and government customers in the Middle East.
On February 9, GM and GlobalFoundries Inc. (GFS) announced a strategic, long-term agreement establishing a dedicated capacity corridor exclusively for GM’s chip supply. This agreement is expected to strengthen GM’s supply chain.
On February 1, GM declared a $0.09 per share dividend, payable to common stockholders on March 13, 2023. This reflects the shareholder return ability of the company.
GM’s trailing-12-month net income margin of 6.34{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} is 31.7{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} higher than the 4.81{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} industry average. Its trailing-12-month ROCE of 13.98{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} is 12.1{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} higher than the 12.47{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} industry average.
GM’s revenue came in at $43.11 billion for the fourth quarter that ended December 31, 2022, up 28.4{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} year-over-year. Its adjusted EBIT increased 33.8{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} year-over-year to $3.80 billion, while its adjusted EPS came in at $2.12, representing a 57{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} increase year-over-year.
Analysts expect GM’s revenue to increase 12.2{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} year-over-year to $40.13 billion in the fiscal second quarter ending June 2023. Its EPS is expected to increase by 41.4{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} year-over-year to $1.61. It surpassed EPS estimates in three of four trailing quarters.
GM has gained 3.6{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} over the past six months to close the last trading session at $41.13. Moreover, it has gained 16.4{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} over the past month.
GM’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
GM has a B grade for Growth, Value, and Sentiment. Within the Auto & Vehicle Manufacturers industry, GM is ranked #19 out of 61 stocks.
Click here for the additional POWR Ratings for GM (Momentum, Stability, and Quality).
Honda Motor Co., Ltd. (HMC)
Headquartered in Tokyo, Japan, HMC develops, manufactures, and distributes motorcycles, automobiles, power products, and other products in Japan, North America, Europe, Asia, and internationally. It operates through four segments: Motorcycle Business; Automobile Business; Financial Services Business; and Life Creation and Other Businesses.
On January 13, LG Energy Solution and HMC announced the formal establishment of a joint venture to produce lithium-ion batteries for electric vehicles produced by HMC. Batteries generated by the venture would ensure the successful launch of HMC EVs in North America and create high-value jobs in Ohio. This should benefit HMC in the near term.
HMC’s trailing-12-month EBITDA margin of 13.80{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} is 24.4{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} higher than the 11.09{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} industry average. Its trailing-12-month levered FCF margin of 8.41{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} is 520.3{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} higher than the 1.36{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} industry average.
HMC’s sales revenue came in at ¥4.44 trillion ($32.95 billion) for the third quarter that ended December 31, 2022, up 20.3{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} year-over-year. Its operating profit increased 22.2{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} year-over-year to ¥280.40 billion ($2.08 billion). Moreover, its profit came in at ¥244.60 billion ($1.82 billion), representing a 26.8{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} year-over-year rise.
Street expects HMC’s revenue to grow 371.6{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} year-over-year to $125.96 billion for the fiscal year ending March 2023. Its EPS is expected to increase 2.3{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} year-over-year to $3.27. Moreover, it surpassed revenue consensus in three of the trailing four quarters.
Over the past three months, the stock has gained 9.5{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} to close the last trading session at $25.90. It has gained 8.1{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} over the past month.
It’s no surprise that HMC has an overall A rating, which equates to a Strong Buy in our proprietary rating system.
In addition, it has an A grade for Value and a B for Stability and Quality. HMC is ranked #2 within the same industry.
To see the additional POWR Ratings for HMC, click here (Growth, Momentum, and Sentiment).
Stock to Avoid:
Lucid Group, Inc. (LCID)
LCID is a technology and automotive company that develops EV technologies. It designs, engineers, and builds electric vehicles, EV powertrains, and battery systems.
LCID’s trailing-12-month gross profit margin of negative 213.7{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} compares to the 35.33{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} industry average. Its trailing-12-month ROCE of negative 46.49{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} is significantly lower compared to the 12.47{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} industry average.
LCID’s loss from operations widened 38.3{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} year-over-year to $687.52 million for the third quarter that ended September 30, 2022. Its total costs and expenses increased 77.6{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} year-over-year to $882.98 million.
LCID’s adjusted EBITDA loss widened 125.7{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} year-over-year to $552.90 million. Its net loss increased 1.1{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} year-over-year to $530.10 million for the same quarter. Its net loss per share attributable to common stockholders came in at $0.40.
For the fourth quarter ending March 2023, LCID’s EPS is expected to come at negative $0.32. Street expects its revenue for the same quarter to come in at $328.60 million. It failed to surpass Street EPS estimates in three of the trailing four quarters.
The stock has declined 40.9{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} over the past year to close the last trading session at $9.90. Moreover, it declined 9.4{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} intraday.
LCID’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
It has a D grade for Sentiment and an F for Value, Stability, and Quality. Within the same industry, it is ranked #55.
To see the other ratings of LCID for Growth and Momentum, click here.
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GM shares were unchanged in premarket trading Wednesday. Year-to-date, GM has gained 22.27{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809}, versus a 4.36{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi’s interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy.
Having earned a master’s degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors. More…
