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) - Get Report 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) - Get Report and a buy on Ford (F) - Get Report.
"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%.
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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.
But like GM and Toyota, Ford can look forward to 2015. That is when it will benefit from "new product introductions, improved volume, more efficient capacity utilization and cost-cutting," he wrote.
As for March, Levy views it as a starting point for improved sales following the winter storms. He expects 2014 light vehicles to gain 3.4% to 16.1 million units, slightly below more widespread expectations. "Most people are expecting more," he said. "I would rather move (the estimate) up over time."
Kelley Blue Book said it expects March sales increases of 0.4% for GM, 1% for Ford, 2.3% for Toyota and 7.2% for Chrysler. "Following two months of weaker-than-expected sales, the industry should start to bounce back in March," said analyst Alec Gutierrez in a prepared statement.
"Although we aren't expected to hit 16 million SAAR, indications show that consumers are returning to showrooms in spring," Gutierrez said. "The momentum built in March should set the market up for a big month in April."
Written by Ted Reed in Charlotte, N.C.
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