A Guide to 3 Top Auto Stock Picks -- Buy, Hold, or Sell?

The auto industry's prospects seem increasingly optimistic, buoyed by robust new vehicle demand, easing supply-chain constraints, and a rapid shift to EVs. The adoption of cutting-edge technologies further fortifies optimism.

Considering the industry’s promising growth prospects, investors could channel their money into fundamentally sound auto stocks PACCAR Inc (PCAR), Geely Automobile Holdings Limited (GELYY), and Renault SA (RNLSY) now.

The automobile industry faced several challenges: inflationary pressures, semiconductor shortages, and supply chain disruptions. The industry is currently contending with the UAW union strikes. Undeterred by these hurdles, the industry showcased an impressive capacity to maintain operations, satisfy consumer demands, and strategically pursue expansion opportunities.

This resilience is evident in the rising new vehicle sales in the U.S., which reached 1,337,707 in September, marking a significant 19% year-over-year increase. Projections for global car sales in 2023 are also optimistic, now anticipated to top 86.8 million units, higher than the previous forecast of 86.4 million units.

EVs are pivotal in this surge, evidenced by the substantial 45% year-over-year increase in global EV sales in August 2023 to 1,238,000 units. Within the broader automobile market, EV cars now account for 18%, with Battery Electric Vehicles (BEVs) making up 13% of the total share.

According to the International Energy Agency (IEA) projections, EV sales for 2023 are estimated to witness a 35% year-over-year uptick, bringing total sales to approximately 14 million units. The rapid expansion suggests that EVs are on course to secure an even larger segment of the overall car market, potentially inching close to an 18% share by the end of 2023.

Moreover, the rapid integration of advanced digital technologies is revolutionizing manufacturing processes within the automotive sector. Techniques like predictive maintenance using IoT sensors help reduce downtime, and AI-powered analytics improve production efficiency.

Considering these conducive trends, let's look at the fundamentals of the three B-rated Auto & Vehicle Manufacturers stocks, starting with number 3.

Stock #3: PACCAR Inc (PCAR)

PCAR designs, manufactures, and distributes light, medium, and heavy-duty commercial trucks in the United States, Europe, Mexico, South America, Australia, and internationally. It operates through three segments: Truck; Parts; and Financial Services. 

On September 7, PCAR paid its shareholders a regular quarterly dividend of $0.27 per share, an 8% increase from $0.25 per share. Its annualized dividend rate of $1.08 per share translates to a dividend yield of 1.24%. Its four-year average yield is 3.62%. PCAR’s dividend payments have grown at CAGRs of 6% and 7.6% over the past three and five years, respectively.

On September 6, PCAR, Accelera by Cummins, and Daimler Trucks & Buses US Holding LLC partnered to accelerate and localize battery cell production and the battery supply chain in the U.S. The joint venture is anticipated to create highly desirable U.S. manufacturing jobs in the growing clean technology sector. Total investment is expected to be between $2 billion and 3 billion for the 21-gigawatt hour (GWh) factory.

PCAR’s trailing-12-month cash from operations of $3.59 billion is significantly higher than the industry average of $249.05 million. Its trailing-12-month ROCE, ROTC, and ROTA of 26.42%, 12.46%, and 9.89% are 95.1%, 82.9%, and 95.8% higher than the industry averages of 13.54%, 6.81%, and 5.05%, respectively.

Over the past three and five years, its revenue grew at 16.3% and 8.2% CAGRs, respectively, while net income grew at CAGRs of 30.3% and 12.1% over the same periods.

For the fiscal second quarter that ended June 30, 2023, PCAR’s net sales and revenues stood at $8.44 billion, up 24.4% year-over-year. For the same quarter, its net income and net income per share increased 69.5% and 70.1% year-over-year to $1.22 billion and $2.33, respectively.

For the six months that ended June 30, 2023, cash and cash equivalents increased 59.3% year-over-year to $5.15 billion.

Street expects PCAR’s revenue and EPS in the fiscal third quarter ending September 2023 to increase 18.9% and 43.9% year-over-year to $7.95 billion and $2.12, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

The stock has gained 31.5% year-to-date to close the last trading session at $86.77. Over the past year, it gained 48.1%.

PCAR’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a B grade for Growth and Quality. Within the B-rated 52-stock Auto & Vehicle Manufacturers industry, it is ranked #24.

To see additional POWR Ratings for Value, Momentum, Stability, and Sentiment for PCAR, click here.

Stock #2: Geely Automobile Holdings Limited (GELYY)

Headquartered in Wan Chai, Hong Kong, GELYY operates as an automobile manufacturer primarily in the People's Republic of China, engaged in the research and development, production, marketing, and sale of vehicles, automobile parts, and related automobile components, as well as provision of related after-sales and technical services.

On July 11, GELYY and French car maker Renault SA said they would invest up to €7 billion ($7.41 billion) in a new equally held joint venture to develop gasoline engines and hybrid technology for automobiles.

The Joint Venture is anticipated to manufacture more efficient internal combustion engines and hybrid systems at a time when the focus of much of the automobile industry has been on the capital-intensive transition to purely EVs.

GELYY pays an annual dividend of $0.54 per share, translating to a dividend yield of 2.29%. Its four-year average yield is 1.69%.

GELYY’s trailing-12-month cash from operations of $2.33 billion is 941.3% higher than the industry average of $223.80 million. Its trailing-12-month asset turnover ratio of 1.07x is 7.1% higher than the industry average of 1x.

Over the past three and five years, its revenue grew at 23.4% and 8.8% CAGRs, respectively. Over the past three years, its tangible book value and total assets grew at CAGRs of 8.1% and 14.9%, respectively.

For the six months that ended June 30, 2023, GELYY’s revenue and gross profit stood at RMB 73.18 billion ($10.07 billion) and RMB 10.54 billion ($1.45 billion), up 25.8% and 24.4% year-over-year, respectively.

For the same period, its profit stood at RMB 1.27 billion ($175.32 million). Its earnings per share stood at RMB 14.75 cents, up marginally year-over-year.

Street expects GELYY’s revenue in the fiscal year ending December 2023 to increase 9.4% year-over-year to $23.52 billion.

The stock has gained 3.4% over the past five days to close the last trading session at $23.46. It gained 2.8% intraday.

GELYY’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.

GELYY has a B grade for Value and Stability. Within the same industry, it is ranked #20.

Beyond what we’ve stated above, we have also rated the stock for Growth, Momentum, Sentiment, and Quality. Get all ratings of GELYY here.

Stock #1: Renault SA (RNLSY)

Headquartered in Boulogne-Billancourt, France, RNLSY designs, manufactures, sells, repairs, and leases motor vehicles in Europe, Eurasia, Africa, the Middle East, the Asia Pacific, and the Americas. It operates through Automotive; Sale Financing; and Mobility Services segments.

RNLSY pays an annual dividend of $0.05 per share, translating to a dividend yield of 0.70%. Its four-year average yield is 2.38%.

RNLSY’s trailing-12-month cash from operations of $4.65 billion is significantly higher than the industry average of $223.80 million. Its trailing-12-month net income margin of 5.99% is 36.2% higher than the industry average of 4.40%.

Over the past three years, its EBITDA and tangible book value grew at CAGRs of 21.6% and 9.2%, respectively.

For the six months that ended June 30, 2023, RNLSY’s revenues and operating income stood at €26.85 billion ($28.43 billion) and €2.10 billion ($2.22 billion), up 27.3% and 127.1% year-over-year, respectively.

For the same period, its net income and earnings per share stood at €2.12 billion ($2.25 billion) and €7.59 compared to a net loss and loss per share of €1.68 billion ($1.77 billion) and €5.01 in the year-ago period.

Street expects RNLSY’s revenue in the fiscal third quarter ending September 2023 to increase 13.1% year-over-year to $10.91 billion. The company surpassed consensus revenue estimates in three of the trailing four quarters.

The stock has gained 16.5% year-to-date to close the last trading session at $7.71. Over the past year, it gained 27%.

RNLSY’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.

RNLSY has an A grade for Growth and a B for Value and Stability. It is ranked #11 within the same industry.

Click here for the additional POWR Ratings for RNLSY (Momentum, Sentiment, and Quality).

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PCAR shares were trading at $86.07 per share on Wednesday afternoon, down $0.70 (-0.81%). Year-to-date, PCAR has gained 31.77%, versus a 14.97% rise in the benchmark S&P 500 index during the same period.

The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.

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