Detroit (TheStreet) -- It hasn't been much of a first quarter for the auto industry, but 2014's woes could be could be setting the stage for a strong 2015.
On Wednesday, S&P Capital IQ analyst Efraim Levy raised his rating on Toyota (TM) to strong buy from buy, following Toyota's announcement that it will repurchase up to 1.9% of its stock float. Levy also has a strong buy on GM (GM) and a buy on Ford (F).
"A general thesis is looking past 2014 towards growth in 2015," Levy said, in an interview on Thursday. His buy recommendations come as forecasters are predicting an increase in March auto sales, following three consecutive months of flat or down sales, which were widely but not universally attributed to weather. J.D. Power is forecasting a March sales increase of 6%.
So far this year, GM shares are down about 15%, Toyota shares are down about 8% and Ford shares are down about 1%. In mid-morning trading Thursday, all three were showing modest gains.
Levy said his Toyota upgrade reflects an upside related to "a strong balance sheet" at "a strong company that has closed the book on their major recall issue with a settlement with the Department of Justice (and) the fact that they are putting money where their mouth is to repurchase shares.
"It reflects the undervalued nature of the stock," he said. "They have a good dividend plus appreciation potential. It's hard to find much downside." For the year, Toyota sales are down 9%.
As for GM, shares have fallen about 8% since Levy upgraded to a strong buy on March 8. GM announced on Feb. 7 that it would recall about 800,000 cars; on Feb.24, about 600,000 cars were added to the recall. Levy said he is looking past the recall's impact. "A lot of work is being done at GM to improve profitability," he said. "Launch costs will pressure margins, but they should reap benefits from new launches and from European restructuring in 2015."You have to drive the slushy highway of 2014 to get to clearer sailing in 2015," he said. Levy also has a buy on Ford. His report issued March 22 said he expects profit to shrink in 2014 "due to expenses stemming from a record number of new products, increased competitive pressures and costs at Chinese joint ventures where Ford is sharply increasing its capacity."
Additionally, he wrote, Ford faces production downtime as it retools for the 2015 F-150, significant losses in Europe, pressure in South America, and investment costs.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV