Three automobile manufacturers start to look good as demand strengthens

Chris Lau, Kapitall: As aggregate global demand grows, automobile manufacturers start to look good.

The risk of deflation is not apparent in the automotive sector. Prices roses in March, while sales improved for many auto makers.

Prices rose for nearly all auto makers except for Nissan, according to Kelly Blue Book:

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Source: Kelly Blue Book

With Honda Motor Co. (HMC) down nearly 18% from its high in December 2013, its shares could rebound. Prices went up the most in the US, up 4.3% compared to March, 2013. Fellow Japanese manufacturer Toyota Motor (TM) saw vehicle prices improve by 2.3%. It’s worth noting that both manufacturers have rear cameras, which will meet the NHTSA’s (The National Highway Traffic Safety Administration) regulation for rear visibility cameras by May 2018.

Prices rose a respectable 1.7% for vehicles made by Ford Motor (F). The multi-year success in the turnaround of Ford is due strong leadership from its CEO, Alan Mulally. Sales rose 2.6% in March, thanks to the 4.1% rise in truck sales. Sales volume growth was highest for the Mustang, up 21%, followed by the Fusion, up 8.8%. Sales of the Focus dropped a disappointing 3.8%.

Ford shares appear fairly valued, but growth will depend on sales stabilizing in Europe. Ford is already cutting production in Russia, since sales there are weak. Sales declined by 21% in the region for the first two months in 2014. The more significant region for growth will be in Asia. Ford shares are valued at just 12 times forward earnings. Honda and Toyota trade at just 9 and 10 times forward earnings, respectively.

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Bottom Line

The steady drop in automobile stocks is likely temporary. The stock market decline should not be associated to an economic slowdown. Employment in the U.S. is improving, and demand for consumer goods is strong. Auto demand will likely be sustained, meaning more upside ahead for Toyota, Honda, and Ford.

1. Honda Motor Co., Ltd. ( HMC ): Engages in the development, manufacture, and distribution of motorcycles, automobiles, and power products primarily in North America, Europe, and Asia. Market cap at $65.1B, most recent closing price at $36.12.

 

 

2. Toyota Motor Corporation ( TM): Engages in the design, manufacture, assembly, and sale of passenger cars, minivans, and commercial vehicles. Market cap at $184.08B, most recent closing price at $116.17.

 

 

3. Ford Motor Co. ( F): Develops, manufactures, distributes, and services vehicles and parts worldwide. Market cap at $59.84B, most recent closing price at $15.18.

Disclosure: Author has a long position in Ford Motor Co.

(Written by Chris Lau, a Kapitall Writer.) 

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