The automotive sector is flourishing as a result of strong demand for new vehicles, the easing of supply chains, the transition to battery electric vehicles (BEVs), the availability of sufficient inventory, and falling inflation.
Considering these factors, it could be wise to buy fundamentally strong auto stocks Isuzu Motors Limited (ISUZY), Garrett Motion Inc. (GTX), and Blue Bird Corporation (BLBD).
But before we dive further into the fundamentals of these stocks, let’s explore the what’s shaping the auto industry’s prospects.
Despite facing challenges such as high inflation, chip shortages, and rising interest rates, the auto industry managed to perform better than last year. Global light-vehicle sales are expected to touch 89.3 million units this year, increasing 10% from the previous year. In addition, global light-vehicle sales are forecasted to grow 3% year-over-year to 92.3 million units next year.
The auto industry is benefiting from rising disposable incomes, changing consumer preferences, technological innovations, adoption of EVs, expansion of public charging infrastructure, use of advanced automotive components, rise in the popularity of automotive DIY projects, and growing demand for aftermarket products.
Global sales of BEVs and plug-in hybrids (PHEV) rose 20% year-over-year to hit a fresh monthly record of 1.4 million units in November. According to BloombergNEF’s electric vehicle outlook, EVs will reach 44% of global passenger vehicle sales by 2030 and 75% by 2040.
Today’s automobiles pack high-tech components, which makes them technologically advanced. These automobiles have advanced driver assistance systems, large display screens that have integrated technology like the Internet of Things (IoT), advanced telematics, battery management systems (BMS), etc. The growing use of such advanced features is boosting the prospects of the auto parts industry.
The global auto parts manufacturing market is projected to grow at a 6.3% CAGR to reach $939.21 billion by 2028.
Keeping these constructive trends in mind, let’s now take a closer look at investment opportunity in front of us by diving into the fundamentals of the featured stocks.
Isuzu Motors Limited (ISUZY)
Headquartered in Yokohama-shi, Japan, ISUZY manufactures and sells commercial vehicles, light commercial vehicles, and diesel engines and components worldwide. Its products include heavy and medium duty trucks and buses, and light-duty trucks; passenger pickup vehicles, pickup trucks, and SUVs; marine and industrial engines and also supplies diesel engines to manufacturers in various fields.
On December 22, 2023, ISUZY announced that in partnership with Honda Motor Co., they have begun public road testing in Japan for their jointly developed GIGA FUEL CELL, a hydrogen fuel-powered heavy-duty truck, with plans to launch the production model in 2027. This initiative reinforces ISUZY's commitment to advancing eco-friendly heavy-duty transportation solutions.
In terms of forward EV/Sales ISUZY’s 0.50x is 60.1% lower than the 1.25x industry average. Its 0.40x forward Price/Sales is 56.9% lower than the 0.94x industry average. Likewise, its 5.90x forward EV/EBIT is 58.4% lower than the 14.18x industry average.
ISUZY’s net sales for the second quarter that ended September 30, 2023, increased 9.7% year-over-year to ¥1.64 trillion ($11.49 billion). Its gross profit increased 17.8% year-over-year to ¥327.93 billion ($2.30 billion). Its comprehensive income attributable to the owners of the parent increased 32% over the prior year quarter to ¥178.59 billion ($1.25 billion).
Additionally, its operating income increased 27.6% year-over-year to ¥143.20 billion ($1 billion). Also, its profit attributable to owners of the parent increased 20.7% year-over-year to ¥88.11 billion ($617.43 million).
Street expects ISUZY’s revenue for the fiscal year ending March 31, 2024, to increase 151.2% year-over-year to $24.19 billion. The stock has gained 9.4% year-to-date to close the last trading session at $12.70.
ISUZY’s POWR Ratings reflect its solid prospects. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
ISUZY has an A grade for Value and a B for Stability and Quality. Within the Auto & Vehicle Manufacturers industry, it is ranked #5 among 51 stocks. In addition to the POWR Ratings stated above, one can access ISUZY’s additional Growth, Momentum, and Sentiment ratings here.
Garrett Motion Inc. (GTX)
Headquartered in Rolle, Switzerland, GTX designs, manufacture, and sell turbocharger and electric-boosting technologies for light and commercial vehicle original equipment manufacturers worldwide. The company offers light vehicle gasoline and diesel, and commercial vehicle turbochargers, as well as electrified vehicles; and provides automotive software solutions.
In terms of forward Price/Sales, GTX’s 0.56x is 40.5% lower than the 0.94x industry average. Its 5.78x forward EV/EBITDA is 43.2% lower than the 10.16x industry average. Likewise, its 7.23x forward EV/EBIT is 49% lower than the 14.18x industry average.
For the fiscal third quarter ended September 30, 2023, GTX’s net sales increased 1.6% year-over-year to $960 million. Its gross profit came in at $176 million. In addition, its adjusted EBITDA increased 4.1% over the prior year quarter to $152 million.
The company’s net income came in at $57 million. Also, its EPS came in at $0.23, representing an increase of 9.5% year-over-year.
GTX’s revenue for the quarter ending December 31, 2023, is expected to increase 5.4% year-over-year to $946 million. Its EPS for the quarter ending March 31, 2024, is expected to increase 80.8% year-over-year to $0.24. Over the past nine months, the stock has gained 29.5% to close the last trading session at $8.92.
It’s no surprise that GTX has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system.
It is ranked #8 out of 62 stocks in the A-rated Auto Parts industry. It has a B grade for Value, Stability, Sentiment, and Quality. Click here to see GTX’s Growth and Momentum ratings.
Blue Bird Corporation (BLBD)
BLBD designs, engineers, manufactures and sells school buses. It operates through two segments: Bus and Parts. The company provides Type C, Type D, and specialty buses and alternative power options through propane, gasoline, compressed natural gas, and electric-powered school buses. They sell replacement bus parts and offer financing services and extended warranties for their products.
In terms of forward non-GAAP PEG, BLBD’s 0.88x is 51.8% lower than the 1.84x industry average. Its 13.27x forward non-GAAP P/E is 31% lower than the 19.23x industry average. Likewise, its 9.55x forward EV/EBIT is 41.7% lower than the 16.39x industry average.
BLBD’s net sales for the fiscal fourth quarter ended September 30, 2023, increased 17.6% year-over-year to $302.96 million. Its non-GAAP net income and EPS came in at $21.35 million and $0.66, respectively, compared to a non-GAAP net loss and loss per share of $21.38 million and $0.66.
Additionally, its adjusted EBITDA came in at $40.71 million, compared to an adjusted EBITDA loss of $16.24 million in the year-ago quarter.
Analysts expect BLBD’s revenue for the quarter ending December 31, 2023, to increase 16.7% year-over-year to $275.13 million. Its EPS for the quarter ending March 31, 2024, is expected to grow at 95.7% year-over-year to $0.53. It surpassed the Street EPS estimates in each of the trailing four quarters, which is impressive. Over the past year, the stock has gained 147.9% to close the last trading session at $25.61.
BLBD’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Quality and a B for Growth and Sentiment. Within the Auto & Vehicle Manufacturers industry, it is ranked #11 out of 51 stocks. To see BLBD’s Value, Momentum, and Stability ratings, click 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.
ISUZY shares were trading at $12.75 per share on Friday afternoon, up $0.05 (+0.39%). Year-to-date, ISUZY has gained 11.35%, versus a 25.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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