We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
These 2 Top Ranked Car Manufacturer Stocks are Insanely Cheap
Read MoreHide Full Article
With the explosion in popularity of electric vehicles in the last few years, it seems that Tesla (TSLA - Free Report) has sucked all the air out of the room, pulling investors from incumbent auto manufacturers.
However, while those speculating on the continued expansion in EVs may eventually prove to be correct, many of these legacy car companies have become completely overlooked and are now trading at historically compelling valuations. And it isn’t like these companies aren’t entering the EV market.
In addition to trading at appealing valuations, these stocks are also Zacks Rank #1 (Strong Buy) rated, demonstrating upward trending earnings revisions, and improving near-term expectations for the stock performance.
Image Source: Zacks Investment Research
PEG Ratio
One valuation metric I find useful for this analysis is the PEG ratio. The PEG ratio, or Price/Earnings to Growth ratio, is a financial measure that relates a company's stock price (P/E ratio) to its expected earnings growth rate.
While one of these stocks remains below their historical median valuations, it isn’t extremely undervalued based on this measure, although still appealing. What makes them especially interesting is that the P/E ratio is low, while earnings are forecast to rocket higher in the coming years.
The PEG Ratio provides investors with a way to gauge whether a stock is reasonably priced in relation to its potential for earnings growth. A PEG ratio less than 1 often suggests that a stock may be undervalued, while a ratio greater than 1 might indicate overvaluation, but interpretation can vary based on other factors and industry norms.
Honda Motor Co.
Honda Motor Co. (HMC - Free Report) , the well-known producer of economy cars, enjoys both a top Zacks Rank and depressed valuation.
Honda Motor Co. also just reported earnings Wednesday after the market closed and results did not disappoint. Although the stock is selling off in trading Thursday, HMC showed strong sales, up 17% for the quarter and a 31% increase in operating profits. Management also raised FY guidance by 20%.
The company also noted that surging demand for EVs in China hurt sales for Honda, however they will be offering new battery powered EVs within the year. I will note that I have looked at Honda’s anticipated EV lineup and it is extremely appealing.
Honda Motor Co. is trading at a one year forward earnings multiple of 8.1x, which is well below this industry average and below its 10- year median of 9.3x. But what is most compelling is its PEG ratio.
Because HMC forecasts EPS growth of 19.1% annually over the next 3-5 years, giving it a PEG of 0.42x. This is an extremely appealing indicator for such an established company.
Image Source: Zacks Investment Research
Toyota Motor
Toyota Motor (TM - Free Report) , the world’s leading car manufacturer, may be the most compelling stock shared here. In addition to a Zacks Rank #1 (Strong Buy), and cheap valuation it is also leading the way in new battery technology, potentially giving it a huge competitive advantage.
Toyota says it is close to being able to manufacture a next-generation solid state battery. A solid-state battery, which uses solid electrolytes to carry ions between electrodes, rather than liquid electrolytes in the current batteries would be game-changing.
There are considerable challenges in large-scale manufacturing of solid-state batteries, but the payoff would be immense if possible. Solid-state batteries would dramatically increase car’s range and cut down charging time to ~10 minutes. It would also reduce fire risk.
Whether they can accomplish this lofty goal is still uncertain, but the team at Toyota Motor says by 2027 it may be a reality. If they can do it, it would truly set them apart from the pack.
Last week, Toyota also reported stellar quarterly earnings. Earnings crushed estimates and doubled over the last year and a slowdown in EV demand in the US, boosted sales of hybrid vehicles.
The company also raised FY guidance and increased its dividend and share-repurchase program.
Toyota Motor is trading at a one year forward earnings multiple of 10.7x, which is in line with the industry average, and just above its 10-year median of 9.8x. However, it too has a PEG ratio that can’t be ignored.
Based on estimates of annual EPS growth of 24.6% TM has a PEG of just 0.43!
Image Source: Zacks Investment Research
Bottom Line
Something that I want to point out is that while everyone is talking about the explosive growth in EVs, at its most recent quarterly earnings meeting, Tesla showed YoY sales growth of just 9%. While this is mostly representative of the US market, both of the carmakers shared here had better sales growth than that.
Furthermore, while Tesla is the leader, it also trades at a premium valuation, while the stocks shared here are likely below fair value and entering the EV space. All something to consider when looking at auto stocks.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
These 2 Top Ranked Car Manufacturer Stocks are Insanely Cheap
With the explosion in popularity of electric vehicles in the last few years, it seems that Tesla (TSLA - Free Report) has sucked all the air out of the room, pulling investors from incumbent auto manufacturers.
However, while those speculating on the continued expansion in EVs may eventually prove to be correct, many of these legacy car companies have become completely overlooked and are now trading at historically compelling valuations. And it isn’t like these companies aren’t entering the EV market.
In addition to trading at appealing valuations, these stocks are also Zacks Rank #1 (Strong Buy) rated, demonstrating upward trending earnings revisions, and improving near-term expectations for the stock performance.
Image Source: Zacks Investment Research
PEG Ratio
One valuation metric I find useful for this analysis is the PEG ratio. The PEG ratio, or Price/Earnings to Growth ratio, is a financial measure that relates a company's stock price (P/E ratio) to its expected earnings growth rate.
While one of these stocks remains below their historical median valuations, it isn’t extremely undervalued based on this measure, although still appealing. What makes them especially interesting is that the P/E ratio is low, while earnings are forecast to rocket higher in the coming years.
The PEG Ratio provides investors with a way to gauge whether a stock is reasonably priced in relation to its potential for earnings growth. A PEG ratio less than 1 often suggests that a stock may be undervalued, while a ratio greater than 1 might indicate overvaluation, but interpretation can vary based on other factors and industry norms.
Honda Motor Co.
Honda Motor Co. (HMC - Free Report) , the well-known producer of economy cars, enjoys both a top Zacks Rank and depressed valuation.
Honda Motor Co. also just reported earnings Wednesday after the market closed and results did not disappoint. Although the stock is selling off in trading Thursday, HMC showed strong sales, up 17% for the quarter and a 31% increase in operating profits. Management also raised FY guidance by 20%.
The company also noted that surging demand for EVs in China hurt sales for Honda, however they will be offering new battery powered EVs within the year. I will note that I have looked at Honda’s anticipated EV lineup and it is extremely appealing.
Honda Motor Co. is trading at a one year forward earnings multiple of 8.1x, which is well below this industry average and below its 10- year median of 9.3x. But what is most compelling is its PEG ratio.
Because HMC forecasts EPS growth of 19.1% annually over the next 3-5 years, giving it a PEG of 0.42x. This is an extremely appealing indicator for such an established company.
Image Source: Zacks Investment Research
Toyota Motor
Toyota Motor (TM - Free Report) , the world’s leading car manufacturer, may be the most compelling stock shared here. In addition to a Zacks Rank #1 (Strong Buy), and cheap valuation it is also leading the way in new battery technology, potentially giving it a huge competitive advantage.
Toyota says it is close to being able to manufacture a next-generation solid state battery. A solid-state battery, which uses solid electrolytes to carry ions between electrodes, rather than liquid electrolytes in the current batteries would be game-changing.
There are considerable challenges in large-scale manufacturing of solid-state batteries, but the payoff would be immense if possible. Solid-state batteries would dramatically increase car’s range and cut down charging time to ~10 minutes. It would also reduce fire risk.
Whether they can accomplish this lofty goal is still uncertain, but the team at Toyota Motor says by 2027 it may be a reality. If they can do it, it would truly set them apart from the pack.
Last week, Toyota also reported stellar quarterly earnings. Earnings crushed estimates and doubled over the last year and a slowdown in EV demand in the US, boosted sales of hybrid vehicles.
The company also raised FY guidance and increased its dividend and share-repurchase program.
Toyota Motor is trading at a one year forward earnings multiple of 10.7x, which is in line with the industry average, and just above its 10-year median of 9.8x. However, it too has a PEG ratio that can’t be ignored.
Based on estimates of annual EPS growth of 24.6% TM has a PEG of just 0.43!
Image Source: Zacks Investment Research
Bottom Line
Something that I want to point out is that while everyone is talking about the explosive growth in EVs, at its most recent quarterly earnings meeting, Tesla showed YoY sales growth of just 9%. While this is mostly representative of the US market, both of the carmakers shared here had better sales growth than that.
Furthermore, while Tesla is the leader, it also trades at a premium valuation, while the stocks shared here are likely below fair value and entering the EV space. All something to consider when looking at auto stocks.