The macroeconomic challenges of high inflation, interest rate hikes, and supply chain disruptions affected the sales of new vehicles last year. However, the auto industry is widely expected to rebound this year due to easing inflation and improving supply chains.
Amid this backdrop, it could be wise to add fundamentally strong auto stocks Ford Motor Company (F), General Motors Company (GM), and Blue Bird Corporation (BLBD) to one’s watchlist.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the auto industry is well-positioned for growth.
Fueled by pent-up demand and the easing of supply chains, auto sales grew 16.8% from April through June to over 4.1 million. S&P Global Mobility expects new light vehicle sales to reach 1.33 million units in July, up 18% year-over-year. Also, it forecasts U.S. light vehicle sales to come in at 15.4 million in 2023, up from the previous estimate of 15.1 million.
The auto industry is also benefiting from the shift toward environmentally-friendly transportation options. The demand for electric vehicles (EVs) is soaring as concerns over climate change intensify. Automakers are investing in EV research and development, offering various electric models that appeal to environmentally-conscious consumers.
Additionally, the rapidly expanding public charging infrastructure and incentives from the government is boosting the demand for electric vehicles. Electric vehicle sales in the United States could reach 40% of total passenger car sales by 2030, with more optimistic projections of sales crossing 50% by 2030.
Let's take a closer look at their fundamentals.
Ford Motor Company (F)
F develops, delivers, and services a range of Ford trucks, commercial cars and vans, sport utility vehicles, and Lincoln luxury vehicles worldwide. It operates through Ford Blue, Ford Model e, and Ford Pro; Ford Next; and Ford Credit segments.
On February 21, 2023, F, LG Energy Solution, and Koç Holding signed an MoU to create a large electric vehicle battery cell facility in Ankara, Turkey. The joint venture aims to start production in 2026 with an initial capacity of 25 GWh, expandable to 45 GWh.
Lisa Drake, vice president, EV Industrialization at F, said, “Ford continues to ramp up our electric vehicle plans as we scale to be a leader in the electric vehicle revolution. We are delivering on the commitment to produce batteries in the same region where we build electric vehicles.”
“Establishing the new joint venture with LGES and Koç Holding will lay a solid foundation that is fundamental to building a thriving electric vehicle future for Ford in Europe,” he added.
In terms of forward non-GAAP P/E, F’s 6.84x is 56.6% lower than the 15.74x industry average. Its 1.04x forward EV/Sales is 13.6% lower than the 1.20x industry average. Likewise, its 1.20x forward non-GAAP PEG is 21.4% lower than the 1.53x industry average.
F’s total revenues for the second quarter ended June 30, 2023, increased 11.9% year-over-year to $44.95 billion. Its adjusted net income increased 6.5% year-over-year to $2.93 billion. Its adjusted EBIT rose 1.7% year-over-year to $3.79 billion. The company’s non-GAAP EPS came in at $0.72, representing an increase of 5.9% year-over-year.
Street expects F’s EPS and revenue for the quarter ending September 30, 2023, to increase 44.7% and 3.2% year-over-year to $0.43 and $38.38 billion, respectively. The stock has gained 19.8% year-to-date to close the last trading session at $13.26.
F’s POWR Ratings reflect strong prospects. It has an overall rating of B, which translates to a Buy in our proprietary system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #25 out of 55 stocks in the Auto & Vehicle Manufacturers industry. It has an A grade for Growth and a B for Value. Click here to see F’s Momentum, Stability, Sentiment, and Quality ratings.
General Motors Company (GM)
GM designs, builds, and sells trucks, crossovers, cars, and automobile parts; and provides software-enabled services and subscriptions worldwide. The company operates through GM North America, GM International, Cruise, and GM Financial segments.
On June 30, 2023, GM announced the acquisition of Israel-based battery software startup ALGOLiON Ltd. The move aims to bolster the company's leadership in battery development through strategic investments.
By integrating ALGOLiON's software with their internal capabilities, GM plans to expedite the development of a cost-effective early hazard detection system, benefiting millions of customers globally.
On April 25, 2023, GM announced that it and Samsung SDI intend to invest over $3 billion in a new U.S. battery cell manufacturing plant, with operations scheduled to start in 2026. The plant will have over 30 GWh capacity, helping GM scale its EV production in North America beyond 1 million units annually. The facility will produce nickel-rich prismatic and cylindrical cells.
Doug Parks, executive vice president of global product development, purchasing, and supply chain at GM, said, "The introduction of new cell form factors will allow us to expand into even more segments more quickly and integrate cells directly into battery packs to reduce weight, complexity, and costs. With multiple strong cell partners, we can scale our EV business faster than we could going it alone."
In terms of forward non-GAAP P/E, GM’s 4.95x is 68.5% lower than the 15.74x industry average. Its 6.67x forward EV/EBITDA is 33.3% lower than the 10x industry average. Likewise, its 11.46x forward EV/EBIT is 19.4% lower than the 14.22x industry average.
GM’s total revenues for the second quarter ended June 30, 2023, increased 25.1% year-over-year to $44.75 billion. Its net income attributable to stockholders rose 51.7% year-over-year to $2.57 billion. The company’s adjusted EBIT rose 38% year-over-year to $3.23 billion. Also, its adjusted EPS came in at $1.91, representing a 67.5% increase year-over-year.
For the quarter ending September 30, 2023, GM’s revenue is expected to increase 4.6% year-over-year to $43.81 billion. Its EPS for fiscal 2023 is expected to increase 1.2% year-over-year to $7.68. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 15.2% to close the last trading session at $38.05.
GM’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Value and Sentiment. It is ranked #19 in the same industry. To see GM’s ratings for Growth, Momentum, Stability, and Quality, click here.
Blue Bird Corporation (BLBD)
BLBD designs, engineers, manufactures, and sells school buses and related parts in the United States, Canada, and internationally. It operates through two segments, Bus and Parts.
On 25 May 2023, BLBD announced the opening of its EV Build-up Center at Fort Valley, Ga. to meet rising electric school bus demand, aiming to increase production from 4 to 20 vehicles daily. School districts benefit from over $10 billion in funding, including $5 billion from the Biden Administration's Bipartisan Infrastructure Law, to support the transition to clean school bus transportation.
The EV Build-up Center will enable the company to increase its long-term production capacity to 5,000 electric school buses a year.
In terms of forward EV/Sales, BLBD’s 0.71x is 60.6% lower than the 1.81x industry average. Its 0.60x forward Price/Sales is 56.7% lower than the 1.39x industry average.
For the fiscal second quarter ended April 1, 2023, BLBD’s net sales increased 44.7% year-over-year to $299.8 million. Likewise, its non-GAAP net income came in at $8.60 million, compared to a non-GAAP net loss of $10.13 million in the prior-year quarter.
Also, its non-GAAP EPS came in at $0.27, compared to a non-GAAP loss per share of $0.31 in the year-ago period. Additionally, its adjusted EBITDA came in at $19.84 million, compared to an adjusted EBITDA loss of $10.69 million in the year-ago quarter.
For the quarter ended June 30, 2023, BLBD’s revenue is expected to increase 38.3% year-over-year to $285 million. Its EPS for fiscal 2024 is expected to increase 185.6% year-over-year to $1.46. Over the past nine months, the stock has gained 130.7% to close the last trading session at $20.88.
BLBD’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Growth, Sentiment, and Quality. Within the Auto & Vehicle Manufacturers industry, it is ranked #20. For BLBD’s Value, Momentum, and Stability ratings, click here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
F shares were trading at $13.13 per share on Monday afternoon, down $0.13 (-0.98%). Year-to-date, F has gained 22.84%, versus a 20.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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