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Toyota's Return to Normal

Toyota (TM) is what General Motors (GM) once was, although its story is more akin to that of Ford (F).

Proof of success came in the financial results reported yesterday. They were unspectacular but solid. Revenue, measured in yen, was up almost 15%, and net income, measured in the same currency, was up 81%.

The company projected 13% sales growth for the full year, and net income estimates were raised another 13%. The company is benefiting from a weaker yen, which increases the value of dollar earnings. Like many Japanese companies, its fiscal year starts in April.

Conservative investors like this company. The stock is up almost 38% so far this year, dropping the yield on its $1.26/share dividend to 1.55%. The gain is better than Ford, which is up 32%, and GM, up almost 29%. The price-to-earnings ratio  multiple has slipped slightly as other car companies have recovered, and it's now 16.28.

Investors may still prefer Ford, which despite its rise still has a a below-market P/E of 11.25. But if you stayed in Toyota throughout this recovery, despite its relatively-steep valuation, your patience has been rewarded.

In the name of full disclosure, I've been a happy Toyota owner for more than 20 years. I raised my kids in a Previa van, my daughter drives my old Corolla, and my favorite car of all time is the Toyota Scion xB.

But I've never owned Toyota stock. So I did some background research on the Toyota story for this article. It has been a wild ride.

Founder Satichi Toyoda was born in 1867, four years after Henry Ford, but he was better known for an automatic loom than anything automotive. The car unit was founded in the 1930s as Japan militarized.

The modern company developed under the American occupation, in a crisis which included a strike, the resignation of chairman Kiichiro Toyoda as the company was downsized, and the division of Toyota into production and sales units, a rift that was not healed until 1982 under Eiji Toyoda. Strategos Consulting has an interesting history of Toyota's 1950 crisis, which resulted in a just in time production system called Kanban.

The name Toyoda, by the way, means "fertile rice paddies" and many family members have wound up in management, including Shoichiro Toyoda, Dr. Tatsuro Toyoda, and current president Akio Toyoda. The company name was changed to avoid agricultural references, and trademarked.

Toyota posted an enormous loss in fiscal 2009, $2.4 billion, and was forced to get an emergency loan from a state-backed lender that may have been worth as much as $3 billion. When it was hit by a string of recalls in 2010, then-CEO Akio Toyoda personally apologized to the U.S. Congress. He is now president. The company named its first outside directors in June, at its most recent shareholders meeting.

I've always considered Toyota a very uptight company, especially in its ads, which feature people dancing as though their lives depend on the height of their kicks and the width of their smiles. But Toyota is changing, loosening up, and developing more of a sense of humor about itself.

Rather than just kill its old FJ cruiser line, for instance, it's taking that line out with a bang, a limited edition FJ Cruiser Ultimate Edition designed for off-road racing. Our Anton Wahlman got to drive a Tesla-based SUV earlier this year.

Toyota put a fish tank in the back of an SUV during a recent auto parts show, calling the result a "Spongebob Highlander." It brought a concept car to the Tokyo Auto Show it says can read your emotions. Toyota has also revealed a fuel cell car for release in 2015.

All these are the moves of a company that is back to normal and comfortable in its own skin. For the Toyoda family, a happy ending. For investors, a good stock.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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