The global automotive industry is expected to grow at a CAGR of 4.8% between 2020 to 2025. The auto industries’ primary focus has of late shifted from fuel-efficiency and performance to connectivity and electrification. This evolutionary change is creating new opportunities for innovative vehicle manufacturers.
Investors have been betting big on emerging electric vehicle (EV) stocks solely based on optimism over the industry’s growth prospects in the context of a broader global shift to clean energy. However, many of these companies lack the financial strength to justify their premium valuations. Moreover, competition in the EV market is getting fiercer with the entry of established major vehicle manufacturers.
So, we believe it could be wise now to invest in undervalued auto manufacturing stocks that have sufficient fundamental strength to rebound with an economic recovery. Honda Motor Company (HMC), Subaru Corporation (FUJHY), and Oshkosh Corporation (OSK) are three such stocks.
Honda Motor Company (HMC)
HMC develops, manufactures, and markets cars and motorbikes. The company has worldwide operations. HMC has gained 25.9% over the past year to close Thursday’s trading session at $29.67.
HMC recently began selling its new car model called Legend, which comes equipped with its Honda SENSING Elite feature. The company’s HondaJet Elite has recently received Russian certification and can now operate there.
In terms of non-GAAP forward price/earnings, HMC is currently trading at 12.59x, which is 37.22% lower than the industry average 20.06x. In terms of non-GAAP forward price/sales, HMC is currently trading at 0.43x, 67.84% lower than the industry average 1.34x. HMC’s EPS is estimated to grow at a rate of 21.8% per annum over the next five years.
Our POWR Ratings are also high on HMC. It has an Overall Rating of A, which translates to a Strong Buy. The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.
HMC also has an A grade for Value and B for Growth, Momentum, Stability, and Sentiment. In the B-rated Auto & Vehicle Manufacturers industry, it is ranked #1 of 51 stocks.
In total, we rate HMC on eight different levels. Beyond what we stated above we have also given HMC a grade for Quality. Get all the HMC ratings here.
Subaru Corporation (FUJHY)
FUJHY develops, manufacturers, and markets automobiles and aerospace-related products. The company is also involved in motor sports. FUJHY’s stock has returned 8.8% since the market correction last March and the stock closed yesterday’s trading session at $9.89.
FUJHY recently announced that it will be opening an artificial intelligence (AI) development base to assist in building AI-based driving and assistance. The company has also launched a new car model called SUBARU BRZ. The new model will be available for sale in the U.S. by the fall.
FUJHY’s non-GAAP forward price/earnings of 15.78x is 21.4% lower than the industry average 20.06x. Its forward price/sales of 0.58x is 57% lower than the industry average 1.34x. And its EPS is estimated to grow at a rate of 7% per annum over the next five years.
It’s no surprise that FUJHY has an overall rating of B, which equates to Buy in our POWR Ratings system. FUJHY has an A grade for Value and B for Momentum, Stability, and Quality. In the same industry, it is ranked #15 of 51 stocks.
Beyond what we stated above we have also given FUJHY grades for Sentiment and Growth. Get all the FUJHY ratings here.
Oshkosh Corporation (OSK)
OSK is involved in the manufacture and marketing of military vehicles, fire & emergency vehicles, specialty equipment, and commercial vehicles. The company is also a leading designer of mission-critical vehicles. OSK’s stock price has increased 81.4% over the past year and its last closing price was $113.43.
OSK recently partnered with ALLETE Clean Energy to build a wind energy property in Oklahoma. The company was also recently awarded a contract to deliver next-generation delivery vehicles to the USPS.
In terms of non-GAAP forward price/earnings, ASX is currently trading at 19.98x, which is 11.4% lower than the industry average 22.55x. In terms of non-GAAP forward price/sales, OSK is currently trading at 1.08x, 32.7% lower than the industry average 1.61x.
The company’s revenue is expected to grow 5% in 2021. OSK’s EPS is expected to rise 16% in 2021 and at a rate of 18.2% per annum over the next five years.
OSK’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary ratings system. OSK has an A grade for Value. In the Auto and Vehicle Manufacturers industry, it is ranked #18 of 51 stocks.
Beyond what we stated above we have also given OSK grades for Stability, Sentiment, Growth, Quality, and Momentum. Get all the OSK ratings here.
The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.
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HMC shares were trading at $29.71 per share on Friday morning, up $0.04 (+0.13%). Year-to-date, HMC has gained 5.17%, versus a 4.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaryaman Aashind
Aaryaman is an accomplished journalist that’s passionate about providing in-depth insights about investing and personal finance. Recently he has been focused on the stock market and he specializes in evaluating high-growth stocks.
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