Despite the high-interest rates, the rising demand for advanced technologies and electric vehicles is expected to drive substantial growth in the automotive industry.
So, while I think quality auto stocks REV Group, Inc. (REVG) and Hyster-Yale Materials Handling, Inc. (HY) could be ideal investments, Penske Automotive Group, Inc. (PAG) could be an ideal addition to one’s watchlist for future gains.
Before diving deeper into their fundamentals, let’s discuss why the auto industry is well-positioned for growth.
New vehicle sales in the U.S. totaled 1,211,141 units, marking a 2% year-over-year increase in October. This upswing can be credited to a substantial surge in demand for electric vehicles (EVs) and the continuous economic recovery of the nation.
In addition, electric vehicles play a crucial role in decarbonizing road transport, responsible for over 15% of global energy-related emissions. The sector has witnessed significant growth in recent years, marked by increased sales, improved range, a broader model selection, and enhanced performance. Electric cars are projected to comprise approximately 18% of new car sales in 2023.
Besides, the International Energy Agency’s (IEA) projections suggest a 35% year-over-year surge in EV sales for 2023, reaching 14 million units.
Additionally, the passenger car rental market is growing as people try to avoid the high cost of maintaining vehicles, resulting in increasing demand for renting cars. The global passenger car rental market is expected to grow to $173.19 billion in 2023 at a CAGR of 5.4%.
Furthermore, rising demand for automotive customization, the integration of cutting-edge technologies such as navigation systems and driver assistance systems, and the ascending prominence of e-commerce platforms are propelling the auto parts market.
The global auto parts manufacturing market is projected to expand at a 6.3% CAGR to reach $939.21 billion by 2028.
In light of these encouraging trends, let's look at the fundamentals of the three best auto stocks.
Stocks to Buy:
REV Group, Inc. (REVG)
REVG designs, manufactures, and distributes specialty vehicles and related aftermarket parts and services. The company’s customized vehicle solutions cater to diverse applications, such as essential needs for public services, commercial infrastructure, and consumer leisure.
REVG’s trailing-12-month asset turnover ratio of 1.89x is 137.3% higher than the 0.80x industry average.
The company pays $0.20 annually as dividends, equating to a yield of 1.29% on the current market price, compared to a four-year average dividend yield of 1.51%.
For the fiscal third quarter, which ended July 31, 2023, REVG’s net sales stood at $680 million, up 14.3% year-over-year. Its gross profit and operating income stood at $80.20 million and $25.70 million, up 18.3% and 49.4% from the year-ago quarter, respectively.
Its adjusted net income and adjusted net income per common share stood at $20.90 million and $0.35, up 46.2% and 45.8% from the same period last year, respectively.
Street expects REVG’s revenue and EPS to rise 6.8% and 21.4% year-over-year to $666.13 million and $0.34 in the fiscal fourth quarter that ended October 2023, respectively. It surpassed the consensus revenue estimates in each of the four trailing quarters, which is impressive.
The stock has gained 49.7% over the past six months and 25.1% year-to-date to close the last trading session at $15.79.
REVG’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.
It has a B grade for Growth, Value, Stability, and Quality. It is ranked first among 51 stocks in the B-rated Auto & Vehicle Manufacturers industry.
Access REVG’s Momentum and Sentiment ratings here.
Hyster-Yale Materials Handling, Inc. (HY)
HY designs, engineers, manufactures, sells, and services a line of lift trucks, attachments, and aftermarket parts globally. It markets its products primarily under the Hyster and Yale brand names to independent Hyster and Yale retail dealerships.
HY’s trailing-12-month asset turnover ratio of 2.05x is 156.2% higher than the industry average of 0.80x. Its trailing-12-month ROCE of 51.77% is 323.3% higher than the 12.23% industry average.
On November 14, 2023, HY declared a regular cash dividend of 32.5 cents per share, payable on both the Class A and Class B common stock on December 15, 2023. Its annual dividend rate of $1.30 per share yields 2.73% on prevailing prices.
For the fiscal third quarter that ended September 30, 2023, HY’s revenues increased 19.2% year-over-year to $1 billion. Its operating profit came in at $145 million, compared to an operating loss of $24.90 million in the year-ago quarter.
The company’s net income attributable to stockholders came in at $35.80 million, compared to a loss of $37.30 million in the prior year quarter. Additionally, its earnings per share came in at $2.06, compared to a loss per share of $2.20 in the prior-year quarter.
Analysts expect HY’s EPS and revenue to rise 363.6% and 4.5% year-over-year to $2.04 and $1.03 billion in the fiscal fourth quarter ending December 2023. It surpassed the consensus revenue estimates in each of the trailing four quarters.
The stock has gained 88.3% year-to-date and 66.2% over the past year to close the last trading session at $47.67.
HY’s POWR Ratings are reflected with its robust outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and Value. It is ranked #6 among 61 stocks in the A-rated Auto Parts industry.
Click here to see HY’s Momentum, Stability, Sentiment, and Quality ratings.
Stock to Hold:
Penske Automotive Group, Inc. (PAG)
PAG is a diversified transportation services company that operates automotive and commercial truck dealerships in the United States and internationally. The company operates through four segments: Retail Automotive; Retail Commercial Truck, Other; and Non-Automotive Investments.
PAG’s trailing-12-month gross profit margin of 16.84% is 52.8% lower than the industry average of 35.71%. However, its trailing-12-month asset turnover ratio of 2.06x is 107.3% higher than the industry average of 0.99x.
On October 18, PAG increased its quarterly dividend by $0.07 per share, or 9.7%, to $0.79 per share. The company pays an annual dividend of $3.16, that translates to a yield of 2.13% on the current market price, higher than its four-year average dividend yield of 1.98%.
PAG’s revenue increased 7.6% year-over-year to $7.45 billion in the fiscal third quarter that ended September 30, 2023. Gross profit increased 2.8% year-over-year to $1.22 billion. But net income attributable to common stockholders declined 22.6% and 15% from the previous-year quarter to $263.40 million and $3.92 per share.
Although PAG’s revenue for the fiscal fourth quarter ending December 2023 is expected to grow 2.7% year-over-year to $7.20 billion, its EPS is expected to decline 10.6% from the year-ago quarter to $3.76. Also, it has surpassed its revenue estimates in each of the trailing four quarters.
While PAG’s shares have gained 29.9% year-to-date, they have plummeted 9.8% over the past three months, closing the last trading session at $149.30.
PAG’s POWR Ratings reflect its mixed outlook. The stock has a C grade for Growth, Momentum, and Quality. Within the C-rated Auto Dealers & Rentals industry, it is ranked #9 out of 21 stocks.
Beyond what is stated above, we’ve also rated PAG for Value, Stability, and Sentiment. Get all PAG 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.
PAG shares were trading at $150.86 per share on Friday morning, up $1.56 (+1.04%). Year-to-date, PAG has gained 33.74%, versus a 20.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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