4 Auto Stocks with the Highest Growth Potential After remaining under pressure since last year, the auto industry is expected to rebound this year. To capitalize on this opportunity, one could consider buying auto stocks Hyundai Motor Company...
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After remaining under pressure since last year, the auto industry is expected to rebound this year. To capitalize on this opportunity, one could consider buying auto stocks Hyundai Motor Company (HYMTF), Mazda Motor (MZDAY), Modine Manufacturing Company (MOD), and Hyster-Yale Materials Handling (HY), given their high-growth potential. Read more….
After enduring the challenges of supply chain disruptions, chip shortage, high inflation, high borrowing rates, and softening demand last year, the auto industry's sales are expected to return to pre-pandemic levels with a growth of around 9%. Therefore, investing in high-growth auto stocks Hyundai Motor Company (HYMTF), Mazda Motor Corporation (MZDAY), Modine Manufacturing Company (MOD), and Hyster-Yale Materials Handling, Inc. (HY) could be wise.
Before discussing the fundamentals of these stocks, let me explain why the auto industry looks set for a comeback this year.
Vehicle sales took a hit in 2022, registering its worst full-year performance since 2011. New light-vehicle sales reached 13.70 million units last year, declining 8.2% year-over-year. However, battery electric vehicle (BEV) sales remained strong last year. According to CleanTechnica, 5.7% of U.S. car sales were fully electric last year, compared to 3.2% in 2021.
Automobile manufacturers worldwide are now shifting from internal combustion engine (ICE) vehicles to battery electric vehicles (BEV) and hybrid vehicles. Many manufacturers have set ambitious targets to electrify their entire vehicle portfolio in the next few years.
There is no doubt that electric vehicles are the future, and they will continue to gain market share from ICE vehicles. EVs are expected to register a growth of 61%, with market share rising from 7% in 2022 to 10% this year.
Despite the uncertain macroeconomic conditions, new vehicle sales in the first quarter of fiscal 2023 are on course to beat the first quarter sales in the prior-year quarter. The U.S. light vehicle market is projected to grow by around 10% to 12% in 2023, with sales of more than 14.50 million vehicles.
Let's delve deeper into the fundamentals of the featured stocks to see why they are the best picks to capitalize on the industry's recovery prospects.
Hyundai Motor Company (HYMTF)
Headquartered in Seoul, South Korea, HYMTF manufactures and distributes motor vehicles and parts worldwide. It operates through Vehicle, Finance, and Others segments. It offers cars under the Azera, Sonata, Veloster, i30, Elantra, and various other names. It also provides SUVs and commercial vehicles under the Creta, Kona, Venue, STARIA, H-1, H-100 names.
On March 13, 2023, HYMTF announced that it had agreed to potentially acquire the General Motors (GM) plant in Talegaon, India. Upon the acquisition, the plant will become HYMTF's second plant in India and help the automaker boost its production in India.
HYMTF's revenue grew at a CAGR of 10.5% over the past three years. Its net income grew at a CAGR of 35.2% over the past three years. In addition, its EBIT grew at a CAGR of 39.7% in the same time frame.
HYMTF's sales revenue for the fourth quarter ended December 31, 2022, increased 24.2% year-over-year to ₩38.52 trillion ($297 billion). Its sales volume rose 8.1% over the prior-year period to 1.04 million units. The company's operating profit increased 119.6% year-over-year to ₩3.36 trillion ($2.59 billion). Also, its net profit increased 143.8% year-over-year to ₩1.71 trillion ($1.32 billion).
Analysts expect HYMTF's revenue for the quarter ending March 31, 2023, to increase 10.3% year-over-year to $26.71 billion. The stock has gained 20.8% year-to-date to close the last trading session at $35.93.
HYMTF's POWR Ratings reflect its solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #8 out of 56 stocks within the Auto & Vehicle Manufacturers industry. It has an A grade for Growth, Value, and Stability. Click here to see the other ratings of HYMTF for Momentum, Sentiment, and Quality.
Mazda Motor Corporation (MZDAY)
Headquartered in Hiroshima, Japan, MZDAY manufactures and sells passenger cars and commercial vehicles globally. The company's main offerings include four-wheeled vehicles, gasoline reciprocating engines, diesel engines, and automatic and manual transmissions for automobiles.
In November 2022, MZDAY unveiled its ¥1.5 trillion ($11.47 billion) spending plan to electrify its vehicles and also said that it was considering investing in battery production. The company raised its sales target for electric vehicles from the previously projected 25% to up to 40% of its global sales by 2030.
MZDAY, in its statement, said, "We will promote the full-fledged launch of battery EVs and consider investing in battery production. We estimate Mazda's EV ratio in global sales to rise to a range between 25% and 40% as of 2030."
MZDAY's EBITDA grew at a CAGR of 20% over the past three years. Its net income grew at a CAGR of 38.3% over the past three years. In addition, its EBIT grew at a CAGR of 39% in the same time frame.
For the third quarter ended December 31, 2022, MZDAY's net sales rose 58% year-over-year to ¥1.05 trillion ($8.03 billion). Its operating income increased 127% over the prior-year quarter to ¥54.30 billion ($415.34 million). The company's net income increased 218% year-over-year to ¥17.70 billion ($135.39 million). Also, its EPS came in at ¥28.10, representing an increase of 219.3% year-over-year.
For the quarter ending March 31, 2023, MZDAY's revenue is expected to increase 17.8% year-over-year to $8.72 billion. Over the past year, the stock has gained 18.1% to close the last trading session at $4.30.
MZDAY's strong fundamentals are reflected in its POWR Ratings. The company has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It is ranked #4 in the same industry. It has an A grade for Growth and Value and a B for Quality. To see the other ratings of MZDAY for Momentum, Stability, and Sentiment, click here.
Modine Manufacturing Company (MOD)
MOD provides engineered heat transfer systems and heat transfer components for use in on- and off-highway original equipment manufacturer vehicular applications. It operates in two segments: Climate Solutions; and Performance Technologies.
On November 8, 2022, MOD announced the launch of its new production facility in Rockbridge, Virginia. The plant will manufacture cooling solutions under MOD's Airedale brand to capitalize on the data center industry tailwinds.
MOD President and CEO Neil Brinker said, "The demand for data is growing exponentially, and the Rockbridge plant positions Modine to offer a full range of cooling solutions to serve North American customers in the growing data center market. The products we manufacture here are one way Modine is engineering a cleaner, healthier world."
MOD's EBITDA grew at a CAGR of 12.5% over the past three years. Its net income grew at a CAGR of 87.9% over the past three years. In addition, its EBIT grew at a CAGR of 32% in the same time frame.
MOD's net sales for the third quarter ended December 31, 2022, increased 11.5% year-over-year to $560 million. Its gross profit increased 30.8% over the prior-year quarter to $97.60 million. The company's adjusted EBITDA rose 35.6% year-over-year to $53.30 million. In addition, its net earnings attributable to MOD came in at $24.50 million.
Its adjusted EPS came in at $0.48, representing an increase of 54.8% year-over-year. For nine months ended December 31, 2022, MOD's net cash provided by operating activities rose 817.6% year-over-year to $67.90 million.
Analysts expect MOD's EPS for the quarter ending June 30, 2023, to increase 43.8% year-over-year to $0.47. Its revenue for the quarter ending March 31, 2023, is expected to increase 1.9% year-over-year to $585.03 million. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 137% to close the last trading session at $21.80.
MOD's POWR Ratings reflect its solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
Within the A-rated Auto Parts industry, it is ranked #10 out of 60 stocks. It has an A grade for Growth and Value and a B for Momentum and Sentiment. Click here to see the other ratings of MOD for Stability and Quality.
Hyster-Yale Materials Handling, Inc. (HY)
HY designs, engineers, manufactures, sells, and services a line of lift trucks, attachments, and aftermarket parts worldwide. The company manufactures components, such as frames, masts, and transmissions, and assembles lift trucks.
On March 21, 2023, Yale Lift Truck Technologies announced the expanded availability of Yale Reliant, the company's advanced operator assist solution, now available on 13 additional Yale lift truck models. Yale's Director of Technology Solutions, Nic Temple, said that while the company was breaking new ground by making the technology available on a broader range of lift truck types, operator assists systems are still relatively new.
HY's revenue grew at a CAGR of 4.2% over the past five years. Its total assets grew at a CAGR of 3.1% over the past three years. In addition, its levered FCF margin grew at a CAGR of 91% in the same time frame.
For the fourth quarter ended December 31, 2022, HY's revenues increased 18.7% year-over-year to $985.20 million. The company's gross profit rose 131% over the prior-year period to $146.70 million. Its net income came in at $7.60 million, compared to a net loss of $103.30 million in the year-ago period. Its EPS came in at $0.44, compared to a loss per share of $6.14 in the prior-year period.
For the quarter ending March 31, 2023, HY's EPS and revenue are expected to increase 125% and 13.8% year-over-year to $0.37 and $941.59 million, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. The stock has gained 78.8% year-to-date to close the last trading session at $45.25.
HY's strong fundamentals are reflected in its POWR Ratings. The company has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It is ranked #14 in the Auto Parts industry. HY has an A grade for Growth and Sentiment and a B for Value and Momentum. To see the other ratings of HY for Stability and Quality, click here.
What To Do Next?
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HYMTF shares were unchanged in premarket trading Monday. Year-to-date, HYMTF has gained 20.77%, versus a 4.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master's degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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