The automotive sector holds significant promise this year, due to strong consumer demand, a robust labor market boosting incomes, and high trade-in values. Additionally, the rising adoption of EVs and hybrid vehicles and ongoing supply chain adaptations create attractive investment opportunities, even amidst challenges such as elevated interest rates and inflation.
Given this backdrop, smart investors could consider buying fundamentally strong auto stocks such as Isuzu Motors Limited (ISUZY) and Honda Motor Co., Ltd. (HMC) to rev up their portfolio.
In 2024, U.S. new vehicle sales are expected to hit 15.7 million units, marking a 1.3% rise from 2023. Despite economic uncertainties, strong commercial and leasing segments, high vehicle inventory, online purchase shifts, and integration of advanced driver assistance systems drive this growth. The global automotive industry is set to grow from $4.36 trillion in 2024 to $6.68 trillion by 2032, with a CAGR of 5.7%.
Meanwhile, this year global EV sales are projected to reach approximately 17 million, making up over 20% of all vehicles sold. This momentum is fueled by supportive government policies, incentives, and price competition. Also, substantial investments in EV supply chains and battery manufacturing are further supporting the industry's expansion.
Furthermore, global electric vehicle market revenue is projected to hit $906.70 billion by 2028, with an impressive 9.8% CAGR. Investors’ interest in auto stocks is evident from the First Trust S-Network Future Vehicles & Technology ETF’s (CARZ) 6% returns over the past nine months.
Considering these conducive trends, let’s analyze the fundamental aspects of the two Auto & Vehicle Manufacturers stocks mentioned above, starting with the second choice.
Stock #2: Isuzu Motors Limited (ISUZY)
Headquartered in Tokyo, Japan, ISUZY manufactures and sells commercial vehicles, light commercial vehicles, and diesel engines and components worldwide. Its products include heavy-duty and medium-duty trucks, buses, light-duty trucks, passenger pickup vehicles, pickup trucks, SUVs, and marine and industrial engines.
On July 31, 2024, ISUZY announced the global launch of connected services for BEV trucks, starting with light-duty trucks in North America. The services, including uptime support and charging management, will gradually expand worldwide to enhance the efficient operation of BEVs.
On July 29, 2024, ISUZY announced the start of production for its new heavy-duty "S&E Series" trucks at UD Trucks’ Thai facility, aimed at international markets. This launch is part of expanding product collaboration between ISUZY and UD Trucks, targeting key regions like ASEAN, the Middle East, and Latin America.
In terms of the trailing-12-month EBIT margin, HMC’s 8.97% is 13.9% higher than the 7.88% industry average. Similarly, its 4.91% trailing-12-month Capex / Sales is 64.5% higher than the industry average of 2.98%. The stock’s 1.05x trailing-12-month asset turnover ratio is 6.7% higher than the industry average of 0.99x.
ISUZY’s net sales for the first quarter, which ended on June 30, 2024, stood at ¥747.95 billion ($5.07 billion). Its operating income grew 12.1% from the year-ago value to ¥76.91 billion ($520.84 million).
Additionally, the company's net income attributable to the owners of the parent increased 3.3% year-over-year to ¥46.91 billion ($317.68 million), and its net income per share came in at ¥62.66, representing a 7.8% year-over-year increase.
Analysts expect ISUZY’s revenue for the quarter ending March 31, 2025, to increase 11.3% year-over-year to $6.01 billion. ISUZY surpassed the consensus revenue estimates in three of the trailing four quarters. Over the past year, the stock has gained 19.9% to close the last trading session at $14.27.
ISUZY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #5 out of 50 stocks in the Auto & Vehicle Manufacturers industry. It has an A grade for Value and a B for Stability and Quality. To see ISUZY’s Growth, Momentum, and Sentiment ratings, click here.
Stock #1: Honda Motor Co., Ltd. (HMC)
Headquartered in Tokyo, Japan, HMC develops, manufactures, and distributes motorcycles, automobiles, power, and other products in Japan, North America, Europe, Asia, and internationally. It operates through four segments: Motorcycle Business, Automobile Business, Financial Services Business, and Power Product and Other Businesses.
On August 1, 2024, HMC announced a joint research agreement with Nissan on fundamental technologies for next-generation Software-Defined Vehicle (SDV) platforms, aimed at advancing vehicle intelligence and electrification. The partnership will also explore cooperation in batteries, e-Axles, and other key areas.
On the same date, HMC announced that Mitsubishi Motors has joined the strategic partnership discussions with Nissan and HMC to explore collaborations in vehicle intelligence and electrification. The partnership aims to leverage each company's strengths to accelerate innovation in these areas.
In terms of the trailing-12-month net income margin, HMC’s 5.42% is 18.6% higher than the 4.57% industry average. Likewise, its 13.21% trailing-12-month EBITDA margin is 15.4% higher than the industry average of 11.45%. Furthermore, the stock’s 7.74% trailing-12-month levered FCF margin is 38.7% higher than the industry average of 5.58%.
For the fiscal first quarter ended June 30, 2024, HMC’s sales revenue increased 16.9% year-over-year to ¥5.40 trillion ($36.57 billion). Its operating profit rose 22.9% year-over-year to ¥484.71 billion ($3.28 billion).
HMC’s profit for the period attributable to owners of the parent grew 8.7% over the prior-year quarter to ¥394.66 billion ($2.67 billion). Also, its EPS attributable to owners of the parent stood at ¥81.81, up 12% year-over-year.
For the quarter ending September 30, 2024, HMC’s revenue is expected to increase 10.2% year-over-year to $36.27 billion. Its EPS for fiscal 2026 is expected to rise 141.5% year-over-year to $2.77. Over the past year, the stock has gained 5% to close the last trading session at $31.72.
HMC’s solid prospects are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Value, Stability, and Quality. Within the same industry, it is ranked #4. Beyond the grades mentioned above, we have also rated HMC for Growth and Momentum. Get all ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
HMC shares were trading at $32.47 per share on Monday afternoon, up $0.75 (+2.36%). Year-to-date, HMC has gained 6.69%, versus a 18.15% 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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